ANNUAL REPORT 2015 - malaysiastock.biz Datuk Roslan Hj Tik Executive Director, Head of Group Investment Banking & Islamic Banking Kenanga Investment Bank Berhad Maheswari Kanniah Group

ANNUAL REPORT2015

AWARDS AND ACHIEVEMENTS

For the fifth (5th) consecutive year, Kenanga

Investors Berhad’s Kenanga Growth Fund was

awarded the Recommended Unit Trusts

Award 2015/16 (Core Equity Malaysia) by

Fundsupermart.com.

1 8J U N E2 0 1 5

Kenanga Deutsche Futures Sdn Bhd was voted as

the Emerging Market Broker of the Year 2015

at the Futures & Options World (FOW) Awards

for Asia 2015.

2 3SEPTEMBER2 0 1 5

Kenanga Investors Berhad was awarded 2015

Malaysia Rising Star and Malaysia CIO of the

Year at the Asia Asset Management – Best of

the Best Awards 2015.

1 8M A R C H2 0 1 6

Kenanga Group clinched five (5) awards at the

prestigious Bursa Malaysia Broker Awards

2015:

• Best Derivatives Trading Broker

(Champion)

• Best Trading Broker – Equity Derivatives

(Champion)

• Best Retail Equities Broker

(1st Runner Up)

• Best Derivatives Clearing Broker

(1st Runner Up)

• Best Equities Broker

(2nd Runner Up)

0 1A P R I L2 0 1 6

0 7M A R C H2 0 1 6

Kenanga Investors Berhad’s Kenanga Growth

Fund was recognised as the Best Performing

Equity Malaysia Fund under the five (5)

and ten (10) years categories at The Edge

Thomson Reuters Lipper Fund Awards 2016.

This is the fourth (4th) year Kenanga Growth Fund

has been recognised for the five (5) years category.

INSIDE THIS REPORT

MESSAGE FROM CHAIRMAN AND GROUP MANAGING DIRECTORA joint statement that provides an overview of Kenanga Group’s progress and developments for the year under review.

OPERATIONS REVIEWThis section explains the divisions and businesses within Kenanga Group.

CORPORATE RESPONSIBILITYA journey through Kenanga Group’s Corporate Responsibility activities and events.

006 026 031

A B O U T U S

002 Corporate Information

003 Corporate Structure

M E S S A G E T O S H A R E H O L D E R S

006 Message from Chairman and Group

Managing Director

B O A R D A N D M A N A G E M E N T

012 Directors’ Profiles

022 Senior Management

B U S I N E S S R E V I E W

026 Operations Review

031 Corporate Responsibility

C O R P O R A T E A C C O U N T A B I L I T Y

040 Statement on Corporate Governance

062 Statement on Compliance

and Governance

065 Audit Committee Report

071 Statement on Risk Management

and Internal Control

F I N A N C I A L S

076 Five (5) Years Group Financial Summary

078 Financial Statements

S H A R E H O L D E R S ’ I N F O R M A T I O N

218 Analysis of Shareholdings

219 List of Thirty (30) Largest

Shareholders

220 Substantial Shareholders and Directors’ Interest in Shares

N O T I C E

221 Notice of Twenty-Second (22nd)

Annual General Meeting

226 Statement Accompanying

Notice of Twenty-Second (22nd) Annual General Meeting

• Proxy Form

ABOUT US

K & N KENANGA

HOLDINGS BERHAD ANNUAL REPORT

2015

002 CORPORATE INFORMATION

B O A R D O F D I R E C T O R STengku Dato’ Paduka Noor Zakiah

Binti Tengku IsmailChairman/ Non-Independent

Non-Executive Director

Datuk Syed Ahmad Alwee AlsreeDeputy Chairman/

Non-Independent Non-Executive Director

Datuk Chay Wai LeongGroup Managing Director

Datuk Kevin How KowIndependent Non-Executive Director

Luigi Fortunato GhirardelloIndependent Non-Executive Director

Dato’ Richard Alexander John CurtisNon-Independent Non-Executive Director

Izlan Bin IzhabIndependent Non-Executive Director

Ismail Harith MericanNon-Independent Non-Executive Director

Luk Wai Hong, WilliamIndependent Non-Executive Director

A U D I T C O M M I T T E EDatuk Kevin How Kow

Chairman

Izlan Bin IzhabLuk Wai Hong, William

Members

G R O U P N O M I N AT I O N & R E M U N E R AT I O N C O M M I T T E E

Izlan Bin IzhabChairman

Datuk Syed Ahmad Alwee AlsreeDatuk Kevin How Kow

Dato’ Richard Alexander John CurtisLuigi Fortunato Ghirardello

Members

GROUP EXECUT I VE COMMITTEE


K & N Kenanga Holdings Berhad

Dato’ Bruce Kho Yaw HuatSenior Executive Director


Lee Kok KheeExecutive Director, Head of Equity Broking

Kenanga Investment Bank Berhad

Datuk Roslan Hj TikExecutive Director, Head of Group Investment

Banking & Islamic BankingKenanga Investment Bank Berhad

Maheswari KanniahGroup Chief Regulatory Officer


Cheong Boon KakGroup Chief Financial Officer


Lum Chee WahChief Operating Officer


Nik Hasniza Nik IbrahimChief Human Resource Officer


Stantley Tan Boon TeckDirector, Head of Treasury


Ismitz Matthew De AlwisChief Executive Officer/ Executive Director

Kenanga Investors Berhad

Azila Abdul AzizChief Executive Officer,

Head of Listed DerivativesKenanga Deutsche Futures Sdn Bhd

G R O U P C O M PA N Y S E C R E TA R Y

Norliza Abd Samad(MAICSA 7011089)

R E G I S T E R E D O F F I C EK & N Kenanga Holdings Berhad

8th Floor, Kenanga International,Jalan Sultan Ismail,

50250 Kuala Lumpur, Malaysia.

Tel: +603-2162 1490 / 2164 9080Fax: +603-2161 4990

URL: www.kenanga.com.myE-mail: [email protected]

C O M PA N Y N O .302859-X

S H A R E R E G I S T R A RSymphony Share Registrars Sdn Bhd

Level 6, Symphony House,Pusat Dagangan Dana 1,

Jalan PJU 1A/46,47301 Petaling Jaya,

Selangor Darul Ehsan, Malaysia.

Tel: +603-7849 0777Fax: +603-7841 8151 / 7841 8152

Help Desk: +603-7849 0777E-mail: [email protected]

A U D I T O R SErnst & Young (AF 0039)Chartered Accountants

Level 23A, Menara Milenium,Jalan Damanlela,

Pusat Bandar Damansara,50490 Kuala Lumpur, Malaysia.

P R I N C I PA L B A N K E R SCIMB Bank Berhad

Deutsche Bank (Malaysia) BerhadMalayan Banking Berhad

Public Bank BerhadRHB Bank Berhad

Standard Chartered Bank (Malaysia) Berhad

S T O C K E X C H A N G E L I S T I N GBursa Malaysia Securities Berhad

Main Market: FinanceStock Code: 6483

Stock Name: KENANGA

ABOUT US

K & N KENANGA HOLDINGS BERHAD ANNUAL REPORT 2015

003CORPORATE STRUCTURE

100% Kenanga Capital Sdn Bhd

100%Kenanga Investment

Bank Berhad

100% SSSB Management Services Sdn Bhd

100%Kenanga Management &

Services Sdn Bhd

100% Kenanga Private Equity

Sdn Bhd

100% Kenanga Capital Islamic

Sdn Bhd

49% Kenanga Vietnam Securities Joint

Stock Corporation(Incorporated in Vietnam)

45%Kenanga Investment

Corporation Ltd (Incorporated in Sri Lanka)

100%Kenanga Islamic Investors

Berhad

100%KUT Nominees (Tempatan)

Sdn Bhd

100%KUT Nominees (Asing)

Sdn Bhd

100%Kenanga Funds Berhad

100% Kenanga Nominees

(Asing) Sdn Bhd

100%ECML Berhad

100% Kenanga Singapore Pte. Ltd.

(Incorporated in Singapore)

100% Kenanga Nominees (Tempatan) Sdn Bhd

100%ECML Nominees

(Tempatan) Sdn Bhd

100% Avenue Kestrel Sdn Bhd

73%Kenanga Deutsche Futures Sdn Bhd

100%Kenanga Investors Berhad

29.6%Al Wasatah Al Maliah

Company(Incorporated in the Kingdom of

Saudi Arabia)

50%EB Global JV Sdn Bhd

(Formerly Known As ECML Nominees (Asing) Sdn Bhd)

ABOUT US

K & N KENANGA


2015

004

ABOUT US


005

RECOGNITION FOR THEIR CONTRIBUTION

Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail, Chairman of K & N Kenanga Holdings Berhad was awarded Ikon Peniagawati 2015 by the Association of Bumiputera Women in Business and Profession, Malaysia (Peniagawati). The Award was in appreciation for her contribution and achievements for over fifty (50) years in the stockbroking industry.

Datuk Chay Wai Leong, Group Managing Director of K & N Kenanga Holdings Berhad was recognised as a Transformational Corporate Leader at The BrandLaureate Brand Icon Leadership Awards 2015 for his efforts in making a difference in the banking and finance industry.

MESSAGE TO SHAREHOLDERS

K & N KENANGA


2015

006

MESSAGE FROM

CHAIRMAN AND GROUP MANAGING DIRECTOR

D E A R S H A R E H O L D E R S ,

We are pleased to present K & N Kenanga Holdings Berhad and its Group of Companies’ (Kenanga Group or the Group) Annual Report for the financial year ended 31 December 2015. You will note that this year, we are issuing our statements jointly for the first (1st) time. It is a reflection of how we are working together in partnership to build and grow the many aspects of this organisation.

It is this collaborative culture that has helped propel the Group into becoming one of the leading investment banks today. And, it is with this same sentiment that we remain confident of the Group’s ability to deliver long-term shareholder value and sustainable growth.

This has become especially vital as we face economic uncertainties in the short-term as reflected in the challenging operating conditions in 2015. While the Group was impacted by developments in the financial markets during the year, we remain committed to our values of professionalism, integrity and agility that have become the hallmark of our services over the last forty-two (42) years.

During the year under review, we remained focused on expanding our footprint, broadening our product offerings and engaging with new markets to meet customers’ needs.

“Our collaborative culture has helped propel Kenanga Group into becoming one of the leading investment banks today. And, it is with this same sentiment that we remain confident of the Group’s ability to deliver

long-term shareholder value and sustainable growth to our stakeholders.”

Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail

Chairman




007MESSAGE FROM CHAIRMAN AND GROUP MANAGING DIRECTOR

E X P A N D I N G O U R B U S I N E S S B E Y O N D T H E M A L A Y S I A N

S H O R E S

In efforts to expand beyond the Malaysian shores, we entered into strategic alliances with several foreign brokers including Tokai Tokyo Financial Holdings Inc. (Tokai Tokyo Financial), Japan and Yue Xiu Securities Company Limited (Yue Xiu Securities), China in 2015.

Under the agreement with Tokai Tokyo Financial, one of Japan’s leading investment banking groups, we are able to create cooperative arrangements on potential investment banking opportunities for our respective securities businesses in Malaysia and Japan, explore business opportunities to mutually supply products and services, and facilitate knowledge transfer through staff exchange programmes. We also look forward to capitalise on the opportunities presented by Tokai Tokyo Financial’s growing client base with their affiliates in major markets such as the United States and Hong Kong.

In October 2015, we signed a strategic cooperation agreement with Yue Xiu Securities, an entity which is part of the wider Yue Xiu Group, one of the largest state-owned enterprise groups

in Guangzhou, China. This agreement represents a strategic alliance that has enabled the fostering of a mutually beneficial relationship in areas involving stockbroking and asset management.

F I N A N C I A L H I G H L I G H T S

For the financial year ended 31 December 2015, the Group recorded a profit before tax (PBT) of RM18.22 million compared to a PBT of RM41.77 million from the financial year ended 2014, as the weak market conditions impacted most of the Group’s businesses. Revenue for the year amounted to RM562.99 million compared to RM595.16 million in the previous corresponding period.

In 2015, we remained focused on expanding

our footprint, broadening our product offerings and engaging with

new markets to meet customers’ needs.

O P E R A T I O N A L H I G H L I G H T S

StockbrokingOur Stockbroking division registered a PBT of RM16.72 million compared to RM17.25 million in the financial year ended 2014 under difficult market conditions. The division succeeded in improving its market share to 9.26% from 8.96%, and was ranked third (3rd) in terms of trading value on Bursa Malaysia Securities Berhad’s (Bursa Securities) Broker Ranking List 2015, up from fifth (5th) place in 2014, and was ranked second (2nd) in terms of trading volume on the list. The division was awarded Best Retail Equities Broker (1st Runner Up) and Best Equities Broker (2nd Runner Up) at the Bursa Malaysia Broker Awards 2015.

As part of our continuous efforts to engage with the youth segment, the KenTrade Trading Challenge, endorsed by Bursa Malaysia Berhad (Bursa Malaysia) was organised for the second (2nd) consecutive year. Designed to create public awareness on share trading, the online-based competition registered more than eighteen thousand (18,000) entries within a short span of one (1) month.

In addition, our Equity Derivatives department is aggressively growing its business in the structured warrants market with issuance of various warrants in a variety of sectors. The department also provides unique solutions to our clients by offering alternative financing instruments for mitigation of clients’ risks.

Investment BankingOur Investment Banking division registered a PBT of RM14.13 million in 2015 compared to a PBT of RM31.45 million in 2014, as the soft capital market activities during the year resulted in lower fee income.

Despite the slower activity, the division participated in several significant capital market transactions during the year which included the Initial Public Offering (IPO) of Malakoff Corporation Berhad, for which we


K & N KENANGA


2015

008

were appointed as the Joint Underwriter. The IPO represented the largest listing on Bursa Securities in 2015, raising RM2.74 billion. The division was also instrumental in the IPOs of Bio Alpha Holdings Berhad and Sedania Innovator Berhad, and acted as the Joint Underwriter for AirAsia X Berhad’s RM392 million rights issue, RHB Capital Berhad’s RM2.30 billion rights issue and Borneo Oil Berhad’s RM232 million rights issue.

In October 2015, we expanded our Islamic offerings with the introduction of the Islamic Stockbroking Window, allowing us to harness the growing investor interests in Malaysia’s vibrant Islamic capital market. This adds to our stable of Islamic products which currently includes Islamic treasury and Islamic corporate banking, and complements our existing conventional stockbroking business.

Investment ManagementAs of 31 December 2015, Kenanga Investors Berhad and its subsidiaries (Kenanga Investors Group or KIG) registered a loss of RM6.23 million mainly due to the loss of a large foreign institutional account in late 2014, which we were able to mostly offset in 2015 with Assets Under Management (AUM) growth from local mandates. KIG’s AUM grew to RM6.43 billion from RM5.45 billion as of end 2014.

Our Investment Management division continued to grow its multi-channel distribution base and enlarge its product suite through more locally managed Asian funds to meet growing investor interests.

The division’s capabilities continued to gain recognition during the year, with Kenanga Growth Fund (KGF) named Best Performing Equity Malaysia Fund for the five (5) and ten (10) years categories at The Edge Thomson Reuters Lipper Fund Awards 2016. This is the fourth (4th) year KGF has been recognised for the five (5) years category. KGF was also recognised at Fundsupermart.com’s annual Recommended Unit Trusts Awards for 2015/2016 for the fifth (5th) consecutive year. At the thirteenth (13th) Asia Asset Management Annual Awards 2015, KIG was awarded Rising Star, Malaysia and its Chief Investment Officer (CIO) was named CIO of the Year, Malaysia.

Listed DerivativesOur Futures division registered an improved performance in 2015, delivering a PBT of RM5.71 million against RM4.27 million in 2014 due to the higher exchange volume traded. Kenanga Deutsche Futures Sdn Bhd (KDF) was named the Best Derivatives Trading Broker (Champion) and Best Trading Broker – Equities Derivatives (Champion) for the thirteenth (13th) consecutive year at the annual Bursa Malaysia Broker Awards 2015. KDF was also awarded First (1st) Runner Up in the category of Best Derivatives Clearing Broker during this event. At the Futures & Options World (FOW) Awards for Asia 2015 in Singapore, KDF was awarded Emerging Market Broker of the Year 2015.

Money Lending and FinancingThe profits of our money lending arm Kenanga Capital Sdn Bhd and Kenanga Capital Islamic Sdn Bhd (Kenanga Capital Group) was impacted by the weak sentiments in the equity investment market and reduction of corporate exercises. Despite the decrease in fee income and interest income, the division managed to break even during the year.

Wealth ManagementOur Wealth Management business remains work in progress. Faced with regulatory complexities, long gestation period for business and system development, sales and asset accumulations have yet to reach its financial break-even point, registering a loss of RM8.87 million, similar to previous year’s operating loss of RM8.23 million.

During 2015, while streamlining its operating and systems infrastructure, Wealth Management continued to focus on ensuring its wealth products and services remain relevant for the needs of individual customers. It currently has seventeen (17) unit trust providers, six (6) Private Retirement Scheme providers, twelve (12) insurance/ takaful providers and three (3) will and trust partners, on its platform.

The division is putting in place a more cost efficient business strategy and will continue to focus on fee based income generation through accumulation of assets under management from its clients.

S U S T A I N A B I L I T Y O F T H E O R G A N I S A T I O N

At Kenanga Group, we remain committed to upholding high standards of regulatory compliance and corporate governance in our business conduct. For more information on our corporate governance activities in 2015, we invite you to read our Statement on Corporate Governance on pages 40 to 61 of this report.

During the year, we continued to do our part in the communities we operate in, based on the four (4) pillars of Environment, Community, Marketplace and Workplace. We believe that our Corporate Responsibility (CR) activities play an important role in improving outcomes for all our stakeholders, and we will continue to balance our commercial objectives with community interests. For further details on our work in this area,

MESSAGE FROM CHAIRMAN AND GROUP MANAGING DIRECTOR



009

Lumpur, which will house our new corporate head office. Upon completion of the acquisition and its renovations, the new corporate office will consolidate our three (3) offices in Kuala Lumpur to this one (1) location resulting in cost savings and greater efficiency. We look forward to the relocation by end of the year, which will mark our new place of doing business for years to come.

M O V I N G F O R W A R D

The Malaysian economy is expected to continue to face headwinds in 2016, given the weak commodity environment and volatile currencies. While these current challenging economic prospects and market conditions may prevail in the near-term, we are confident that Kenanga Group is firmly placed to capitalise on the opportunities that remain during this period. We will continue to focus on growing our business both within and outside Malaysia.

A P P R E C I A T I O N

Together, we would like to take this opportunity to thank the Board of Directors for their stewardship of Kenanga Group, as well as our staff for their continued dedication in realising the Group’s ambitions. Our gratitude is also due to our business partners, clients, suppliers and all other stakeholders for their support.

We would also like to express our appreciation to Bank Negara Malaysia, the Securities Commission Malaysia and Bursa Malaysia for their guidance, and finally, our heartfelt thanks go to our valued shareholders for their trust in the Kenanga Group.

Thank you.

Tengku Dato’ Paduka Noor Zakiah Binti Tengku IsmailChairman


please refer to our CR section on pages 31 to 37. We are cognisant of the shift towards Sustainability Reporting which will be mandatory by 2017, based on the Sustainability Guide issued by Bursa Securities, and we are working towards it.

Our people remain our greatest asset and we continue to invest in areas to maximise performance. In March 2015, we rolled out an automated electronic performance management system to promote greater efficiency and visibility of our staff’s key performance indicators (KPIs). This system which operates on a single platform allows the Group to better establish business specific KPIs while ensuring that the necessary guidance is available to respective line managers who conduct performance reviews with their staff.

At the start of 2016, we acquired Dijaya Plaza a nineteen (19) storey high office building on Jalan Tun Razak, Kuala

MESSAGE FROM CHAIRMAN AND GROUP MANAGING DIRECTOR

(From left to right) Syed Zahid Bin Syed Zakaria Equity Broking | Fara Aini Binti Mohd Alias Group Human Resources Edmund Kwong Wealth Management | Tan Zi Lin Group Corporate Planning | Rathakrishnan Sannacy Group Technology Services

FINANCIALS

K & N KENANGA


2015

010

STRENGTH THROUGH DIVERSITY

FINANCIALS


011

(From left to right) Lee Chin Wai Equity Broking | Serina Chow Investment Banking | Mohd Saiful Bahari Kenanga Investors Berhad | Halimahtun Saadiah Mohd Salleh Investment Banking

BOARD AND MANAGEMENT

K & N KENANGA


2015

012 DIRECTORS’ PROFILES

Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail (Tengku Dato’ Paduka Noor Zakiah) was appointed to the Board of K & N Kenanga Holdings Berhad (Kenanga or the Company) on 22 July 1996.

Tengku Dato’ Paduka Noor Zakiah co-founded K & N Kenanga Sdn Bhd (Stockbrokers) (now known as Kenanga Investment Bank Berhad (KIBB or the Bank)) in 1973 and served as the Executive Chairman of KIBB until January 2007.

She has served as the Executive Chairman of Kenanga since she was appointed to the Board on 22 July 1996. In January 2010, she was re-designated as Non-Executive Chairman of Kenanga. Prior to this, she was a partner in a stockbroking firm, Hallam & Co., from 1964 to 1971.

She was the first (1st) lady member of the Kuala Lumpur Stock Exchange, now known as Bursa Malaysia Securities Berhad (Bursa Securities) in 1964 and has over forty-seven (47) years of experience in the securities industry. She was one (1) of the founders of the Association of Stockbroking Companies Malaysia (Association) and was appointed as President of the Association, a post she held until 1994 when she became its Chairman. She was made a Life Advisor to the Association when she retired as Chairman in 1997.

Tengku Dato’ Paduka Noor Zakiah was conferred the “Lady Extraordinaire Award 2014” by the Ministry of Women, Family and Community Development Malaysia in recognition of her remarkable and exceptional contributions and achievements in the field of stockbroking. She also received the “Ikon Peniagawati 2015” award from the Association of Bumiputera Women in Business and Profession, Malaysia (PENIAGAWATI) in recognition of her entrepreneurship, and for being the first (1st) Bumiputera lady in the field of stockbroking in Malaysia, where she has served for more than five (5) decades, since 1964.

Since July 2003, she has represented Kenanga as a member of the Executive Committee of the Federation of Public Listed Companies Berhad.

Tengku Dato’ Paduka Noor Zakiah is currently the Chairman/ Director of KIBB, Kenanga Islamic Investors Berhad (KIIB) and several private limited companies.

She is the mother of Ismail Harith Merican, a Director of Kenanga. She has no conflict of interest with Kenanga and has never been charged for any offence.

AGE

88

NATIONALITY

Malaysian

POSITION

■ Chairman of the Board■ Non-Independent

Non-Executive Director

TENGKU DATO’ PADUKA NOOR ZAKIAH BINTI TENGKU ISMAIL



013DIRECTORS’ PROFILES

Datuk Syed Ahmad Alwee Alsree (Datuk Syed Ahmad) was appointed to the Board of Kenanga as a Non-Independent Non-Executive Director on 28 August 2009. He was subsequently re-designated as Deputy Chairman of the Board on 26 July 2011.

Datuk Syed Ahmad graduated with a Bachelor of Laws (LL.B.) degree from the National University of Singapore and practised law in Singapore for over ten (10) years prior to joining Cahya Mata Sarawak Berhad (CMS), a conglomerate listed on the Main Market of Bursa Securities with cement, construction materials, infrastructure and property development as its core businesses. In February 2004, Datuk Syed Ahmad was appointed as Group General Manager – Human Resources of CMS and was subsequently appointed as its Deputy

Group Managing Director in September 2006, prior to being re-designated as Group Executive Director in August 2008. In 2012, Datuk Syed Ahmad attended and completed the Advanced Management Program at Harvard Business School.

At present, Datuk Syed Ahmad is also the Chairman/ Director of Kenanga Investors Berhad, Deputy Chairman/ Director of KIBB and a Director of KIIB, KKB Engineering Berhad, SIG Gases Berhad and several private limited companies.

He has no family relationship with any Director and/or major shareholder of Kenanga. He has no conflict of interest with Kenanga and has never been charged for any offence.

AGE

50

NATIONALITY

Singaporean,Permanent Resident of Malaysia

POSITION

■ Deputy Chairman of the Board■ Non-Independent

Non-Executive Director■ Member of Group Nomination

& Remuneration Committee

DATUK SYED AHMAD ALWEE ALSREE


K & N KENANGA


2015

014

Datuk Chay Wai Leong (Datuk Chay) was appointed as the Group Managing Director of Kenanga on 17 May 2011. He is also the Managing Director of KIBB.

Currently, he also serves as a Director of the Securities Industry Development Corporation, a company sponsored by the Securities Commission Malaysia and Bursa Malaysia Berhad (Bursa Malaysia), which is involved in the development of capital markets.

Datuk Chay was appointed as an Independent Non-Executive Director of Bursa Malaysia in March 2013 and as a Non-Executive Director of Bursa Malaysia Derivatives Berhad and Bursa Malaysia Derivatives Clearing Berhad in September 2015.

Since his appointment as Group Managing Director of Kenanga in May 2011, Kenanga Group has clinched numerous awards in the investment banking, equity broking, asset management, futures broking, as well as wealth management business segments.

Prior to his appointment as the Group Managing Director of Kenanga and Managing Director of KIBB, he was the Managing Director of RHB Investment Bank Berhad and Head of the Corporate & Investment Banking Division of RHB Banking Group.

Datuk Chay’s previous employment includes Standard Bank, one of South Africa’s largest financial groups, Jardine Fleming Securities in Hong Kong and JP Morgan. Datuk Chay started his career in 1987 with Bankers Trust in Singapore.

He holds a Bachelor of Business Administration from the National University of Singapore.

Datuk Chay has no family relationship with any Director and/or major shareholder of Kenanga. He has no conflict of interest with Kenanga and has never been charged for any offence.

AGE

52

NATIONALITY

Singaporean,Permanent Resident of Malaysia

POSITION

■ Group Managing Director

DATUK CHAY WAI LEONG

DIRECTORS’ PROFILES



015

Datuk Kevin How Kow (Datuk Kevin) was appointed to the Board of Kenanga as an Independent Non-Executive Director on 4 February 2005.

He is a Fellow of the Institute of Chartered Accountants in England & Wales and the Institute of Singapore Chartered Accountants, as well as a member of the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants.

Datuk Kevin was made a partner of Messrs. Ernst & Young, Malaysia in 1984 and served as the partner-in-charge of its offices in Sabah and Sarawak, and from 1996 onwards, as the partner-in-charge of the firm’s practice in Sabah and Labuan until his retirement on 31 December 2003.

Datuk Kevin is also a Director of KIBB, CMS, Sabah Development Bank Berhad, Saham Sabah Berhad, Sarawak Cable Berhad, M3nergy Berhad and several private limited companies.


AGE

67

NATIONALITY

Malaysian

POSITION

■ Independent Non-Executive Director

■ Chairman of Audit Committee ■ Member of Group Nomination

& Remuneration Committee

DATUK KEVIN HOW KOW



K & N KENANGA


2015

016

Luigi Fortunato Ghirardello (Luigi) was appointed to the Board of Kenanga as a Non-Independent Non-Executive Director on 15 February 2006. He was subsequently re-designated as an Independent Non-Executive Director on 27 April 2011.

He holds a Bachelor of Arts and a Bachelor of Laws from the University of Sydney, Australia and a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia.

Luigi was the Managing Director, Head of Global Finance – Asia Pacific for Deutsche Bank AG – Singapore Branch from May 2004 to March 2008. His role encompassed the management of Short-Term Interest Rate Trading in Asia, an integrated short-term trading unit combining foreign exchange and money market products. In addition, he was responsible for interest rate trading in money markets/ Repurchase Agreements and cash products, as well as liquidity management in Japan and Australia. He was also responsible for the regional Global Exchange Services platform in the Asia Pacific.

Prior to that, he was the Deputy Chairman of the Global Market Risk Committee, a member of the Banking Asset/ Liability Committee, as well as the Global Head of Money Markets Trading and Security in London.

Before joining Deutsche Bank in 1995, he was an Associate Director and Trading Manager with Schroders Australia Ltd and held various senior positions at the National Australia Bank.

Luigi is also a Director of KIBB.


AGE

52

NATIONALITY

Australian

POSITION


■ Member of Group Nomination & Remuneration Committee

LUIGI FORTUNATO GHIRARDELLO




017

Dato’ Richard Alexander John Curtis (Dato’ Richard Curtis) was appointed to the Board of Kenanga as a Non-Independent Non-Executive Director on 29 September 2006.

He holds a Bachelor of Laws (LL.B.) (Honours) from the University of Bristol, United Kingdom (UK) and is admitted as a solicitor in England, Wales and Hong Kong. He is also a Sloan Fellow of London Business School, UK.

Dato’ Richard Curtis is currently the Group Managing Director of CMS, a conglomerate listed on the Main Market of Bursa Securities with cement, construction materials, infrastructure and property development as its core businesses. He was appointed as the Group Managing Director of CMS in September 2006.

He is also a Director of KIBB and several private limited companies, as well as a Trustee of Yayasan Raja Muda Selangor.


AGE

64

NATIONALITY

British,Permanent Resident of Malaysia

POSITION

■ Non-Independent Non-Executive Director

■ Member of Group Nomination & Remuneration Committee

DATO’ RICHARD ALEXANDER JOHN CURTIS



K & N KENANGA


2015

018

Izlan Bin Izhab (Izlan) was appointed to the Board of Kenanga as an Independent Non-Executive Director on 20 October 2008.

Izlan holds a Bachelor of Laws from the University of London, UK and attended the Advanced Management Program at the University of Hawaii, in the United States of America (USA).

During his career, he served as the Assistant Legal Officer for Majlis Amanah Rakyat from 1973 to 1975; Company Secretary for Kompleks Kewangan Malaysia Berhad from 1975 to 1978; Company Secretary for Permodalan Nasional Berhad from 1978 to 1984 and Executive Vice President, Corporate and Legal Affairs at the Kuala Lumpur Stock Exchange (now known as Bursa Securities) from 1985 until his retirement in 2000.

Izlan is also a Director of Box-Pak (Malaysia) Berhad, Sun Life Malaysia Takaful Berhad, Reach Energy Berhad and UOB Asset Management (Malaysia) Berhad.


AGE

70

NATIONALITY

Malaysian

POSITION


■ Member of Audit Committee■ Chairman of Group

Nomination & Remuneration Committee

IZLAN BIN IZHAB




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Ismail Harith Merican (Ismail Harith) was appointed to the Board of Kenanga as a Non-Independent Non-Executive Director on 15 April 2010.

He obtained his Bachelor of Arts in History in 1973. He then proceeded to complete the Institute of Chartered Accountants in England and Wales articleship from 1973 to 1978 at Peat, Marwick, Mitchell & Co. in London, UK. Subsequently, from 1978 to 1980, Ismail Harith joined The Economist Newspaper Ltd as an assistant accountant and in 1980, he commenced his involvement in the investment industry when he trained and worked with Strauss Turnbull & Co., a firm of stockbrokers in London. He was with the firm until 1983.

Ismail Harith was employed by K & N Kenanga Sdn Bhd (Stockbrokers) (now known as KIBB) from 1983 to 1990 and the last position he held was as a Bursa Securities’ Dealer’s Representative (Institutions & International). Ismail Harith subsequently joined Straits Securities Sdn Bhd in 1990 as a

shareholder, Managing Director and a Bursa Securities Dealer’s Representative. He also represented Rashid Hussain Berhad, the holding company of Straits Securities Sdn Bhd, as a corporate representative until he left the company in 1997.

From 1998 to date, he has been an investor in quoted securities and properties. He is currently a Director of ISS Servis System Sdn Bhd, a company involved in industrial cleaning; the Managing Director of Zubaimas Realty Sdn Bhd, a property holding company; and the Chairman of Matrix Capital Sdn Bhd, a company involved in the energy efficiency industry.

Ismail Harith is also a Director of KIBB.

He is the son of Tengku Dato’ Paduka Noor Zakiah, a major shareholder and Chairman/ Director of Kenanga, as well as of KIBB. He has no conflict of interest with Kenanga and has never been charged for any offence.

AGE

65

NATIONALITY

Malaysian

POSITION

■ Non-Independent Non-Executive Director

ISMAIL HARITH MERICAN



K & N KENANGA


2015

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Luk Wai Hong, William (Luk) was appointed to the Board of Kenanga as an Independent Non-Executive Director on 1 November 2013.

He holds a Bachelor of Arts (Honours) from Concordia University, Montreal, Canada, a Masters of Urban Planning from the University of Michigan, USA and an Executive Fellowship awarded by the State of Washington.

Luk is currently the Director of Investment of Cotton Tree Capital Ltd, of which he is the co-owner, with offices in Hong Kong and Singapore. He has more than twenty (20) years of experience in various capacities in the financial services industry, out of which eleven (11) years were spent in Deutsche Bank AG, Hong Kong and Singapore.

He began his career in 1989 as an Executive Fellow and Transportation Finance Specialist in the Office of Financial Management at the State of Washington. He later joined Lehman Brothers, Hong Kong as a Fixed Income and Credit Trader in 1993. After three (3) years, he joined HSBC Markets,

Hong Kong for a year, before joining Deutsche Bank AG in 1997 as a Senior Associate Director and Senior Credit and Derivatives Trader. He then became Deutsche Bank AG’s Director and Head of Structured Credit Trading and Principal Finance Asia, a post he held until 2004.

In 2004 and 2008, Luk was appointed as Deutsche Bank AG’s Managing Director and Co-Head of Global Credit Trading and Principal Finance Asia and Managing Director and Co-Head of Saba Proprietary Trading Group Asia, respectively. In 2008, he joined Pacific Advantage Capital, Hong Kong and Singapore, as its Principal and Portfolio Manager focusing on credits and special situations, before taking up the position of Director of Investment of Cotton Tree Capital Ltd in 2011.

Luk is also a Director of KIBB.


AGE

52

NATIONALITY

Hong Kong

POSITION


■ Member of Audit Committee

LUK WAI HONG, WILLIAM


(From left to right) Eddie Tham Group Credit Management | Rachell Soon Wealth Management Hallaj Abas Bin Lufti Group Transformation | Siti Khalida Binti Khalid Investment Banking

“We remain committed to our values of professionalism, integrity and agility that have become the hallmark of our services over the last forty-two (42) years.”


Chairman

Datuk Chay Wai Leong

Group Managing Director

PROGRESS THROUGH COLLABORATION


K & N KENANGA


2015

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AZILA ABDUL AZIZChief Executive Officer, Head of Listed Derivatives Kenanga Deutsche Futures Sdn Bhd

SHAHARIAH BINTI SHAHARUDIN Chief Executive Officer/ Executive DirectorKenanga Islamic Investors Berhad

SEKAR JAGANATHANHead, Group TransformationKenanga Investment Bank Berhad

STANTLEY TAN BOON TECKDirector, Head of Treasury Kenanga Investment Bank Berhad

CHEONG BOON KAKGroup Chief Financial Officer K & N Kenanga Holdings Berhad

ISMITZ MATTHEW DE ALWISChief Executive Officer/ Executive DirectorKenanga Investors Berhad

MAHESWARI KANNIAHGroup Chief Regulatory Officer K & N Kenanga Holdings Berhad

NIK HASNIZA NIK IBRAHIMChief Human Resource Officer K & N Kenanga Holdings Berhad

LUM CHEE WAHChief Operating Officer Kenanga Investment Bank Berhad

DATUK CHAY WAI LEONGGroup Managing DirectorK & N Kenanga Holdings Berhad

NORLIZA ABD SAMADGroup Company Secretary K & N Kenanga Holdings Berhad

DATO’ BRUCE KHO YAW HUATSenior Executive Director K & N Kenanga Holdings Berhad

SENIOR MANAGEMENT

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DATUK ROSLAN HJ TIKExecutive Director, Head of Group Investment Banking & Islamic Banking Kenanga Investment Bank Berhad

TAN LYE SIMGroup Chief Risk Officer Kenanga Investment Bank Berhad

AZLAN BIN ABU RAIS @ A RAIS AL NOAHChief Executive Officer Kenanga Capital Sdn Bhd & Acting Chief Executive Officer Kenanga Capital Islamic Sdn Bhd

TERENCE TAN KIAN MENGChief Internal Auditor Kenanga Investment Bank Berhad

CHUAH SZE PHINGHead of Group Marketing & Communications K & N Kenanga Holdings Berhad

LEE KOK KHEEExecutive Director, Head of Equity Broking Kenanga Investment Bank Berhad

MEGAT MIZAN NICHOLAS DENNEYExecutive Director, Head of Group Business Development K & N Kenanga Holdings Berhad

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SENIOR MANAGEMENT


K & N KENANGA


2015

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(From left to right) Muhammad Hyqal Bin Mohd Yazip Equity Broking | Sean Yap Kenanga Investors Berhad



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DRIVING INNOVATION

BUSINESS REVIEW

K & N KENANGA


2015

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E Q U I T Y B R O K I N G ( E B )

K & N Kenanga Holdings Berhad and its Group of Companies’ (Kenanga Group or the Group) EB business registered a profit before tax (PBT) of RM16.72 million in 2015 compared to RM17.25 million the year before as a result of the 10% decline in the FBMKLCI during the year under review.

Solidifying its footprint in the investment banking industry, Kenanga Investment Bank Berhad (KIBB or the Bank) rose two (2) places to the third (3rd) placing in terms of market share in Bursa Malaysia Securities Berhad’s (Bursa Securities) broker ranking and was once again a podium finisher at the Bursa Malaysia Broker Awards 2015 in the categories of Best Retail Equities Broker (1st Runner Up) and Best Equities Broker (2nd Runner Up).

These Awards recognise KIBB for its contribution and efforts to boost local retail market participation, and for bringing innovations into the marketplace. KIBB’s strong position in the retail segment is testimony to its continued efforts to educate investors on share trading. In the last year, online and on-ground efforts such as contests, investment workshops/ seminars, roadshows and training sessions to educate the youth segment about stockbroking were rolled out. Its initiatives include the multiple award-winning KenTrade Trading Challenge, running for the second (2nd) consecutive year, which saw more than eighteen thousand (18,000) registrants over a short span of one (1) month.

In 2015, the division also provided direct market access to foreign markets such as the Singapore Stock Exchange and the Hong Kong Stock Exchange through its single trading platform, KenTrade. Ongoing enhancements to the platform, aimed at creating seamless direct processing for settlement of trades via the financial process exchange gateway, were also launched for the benefit of its clients.

OPERATIONS REVIEW

Equity Broking

Investment Banking

Asset Management

Listed Derivatives

Treasury

Structured Lending

Wealth Management

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It should also be noted that KIBB’s efforts to increase its market share would not have been possible without the support of the Research Department. Short Message Service (SMS) on selected investment calls made by the Research Department were sent to retail clients. The efforts of the Research team did not go unnoticed by major local institutional clients who continued to rank KIBB’s research capabilities favourably.

The Equity Derivatives (ED) department continued to expand its business in 2015 by increasing the quantity and variety of its structured warrants offerings. NagaWarrants, which was listed on Bursa Securities in 2015, represented underlying stocks from a variety of sectors which are amongst traders’ favourites i.e. technology, oil and gas, property, rubber, industrial and consumer products. Some of its call warrants were amongst the top traded stocks on Bursa Securities in 2015 in terms of trade volume. During the year, NagaWarrants also diversified its underlying assets through the introduction and issuance of structured warrants over the FTSE KLCI Index on Bursa Malaysia.

Our ED department also manages the market risk of its corporate and individual clients through innovative financial instruments, while providing products such as over-the-counter corporate equity derivatives and structured financing products. These products are transacted to enhance the clients’ value while managing their risks.

G R O U P I N V E S T M E N T B A N K I N G A N D I S L A M I C B A N K I N G D I V I S I O N

The division delivered sturdy results in 2015 with a PBT of RM14.13 million, notwithstanding the difficult economic environment and slowdown in capital market activities which became apparent in the last quarter of the year (4Q15).

The division participated in the execution of two Initial Public Offerings (IPOs) – Bio Alpha Holdings Berhad and Sedania Innovator Berhad, which raised RM20 million and RM19.60 million respectively; both of which were listed on the ACE Market of Bursa Securities in the first half of 2015 (1H15). During the same period, the division acted as the Joint Underwriter in Malakoff Corporation Berhad’s IPO, which was the largest IPO on the local bourse in 2015, raising a total of RM2.74 billion. It was also the Joint Underwriter for AirAsia X Berhad’s RM392 million rights issue, RHB Capital Berhad’s RM2.30 billion rights issue and Borneo Oil Berhad’s RM232 million rights issue.

Other mandates secured included KNM Group Berhad’s equity fundraising exercise which raised RM97 million during the last quarter of 2015 (4Q15). The deal was nominated as one of the best fundraising deals by The Edge Malaysia in 2015 as the placement book was covered more than three (3) times despite the difficult market conditions then. Other notable transactions that the division was involved in includes private placements of up to 30% of the issued and paid-up share capital of ManagePay Systems Berhad, an ACE Market listed company, which raised approximately RM30 million and Uzma Berhad’s placement of up to 10%, which raised approximately RM54 million.

In terms of developing new products, the division remained focused on generating deals or creating innovative products which yielded recurring income to the Bank, such as unrated Bonds/ Sukuk and Redeemable Convertible Notes (RCN) deals. In 1H15, the division launched two (2) RCNs, namely a RM100 million RCN programme for Kanger International Berhad and RM50 million programme for D.B.E Gurney Resources Berhad. The division participated in its first (1st) unrated Islamic medium-term notes (MTN)

programme, helping to raise RM100 million under Asia Brands Berhad’s RM200 million Sukuk MTN programme.

On the advisory front, the division performed well in securing a healthy pipeline, reasonably advising Felda Global Ventures Holdings Berhad’s sale of Twin Rivers Technologies Entreprises De Transformation De Graines Oléagineuses Du Québec Inc. to Glencore International Limited Group. The transaction was valued at CAD172 million, or RM567 million at the point of transaction. The division also led Teladan Kuasa Sdn Bhd in its General Takeover Offer of Mulpha Land Berhad (now known as Thriven Global Berhad).

Other notable advisory deals participated by the division include transactions for Bumi Armada Berhad, IOI Properties Group Berhad, OSK Holdings Berhad, Metrod Holdings Berhad, Malaysian Resources Corporation Berhad, NCB Holdings Berhad, Mega First Corporation Berhad and Malaysia Land Development Company Berhad, for which the division acted as the Independent Adviser.

K E N A N G A I N V E S T O R S G R O U P ( K I G )

As at 31 December 2015, Kenanga Investors Berhad and its subsidiaries (Kenanga Investors Group or KIG) registered a loss of RM6.23 million (RM14.46 million profit in 2014) mainly due to the loss of a RM2.40 billion equity Assets Under Management (AUM) in respect of a foreign institutional account in late 2014. However, its AUM grew to RM6.43 billion from RM5.45 billion at the end of the previous year. This was achieved despite the poor market sentiment and a 3.90% decline in the FTSE KLCI.

While KIG saw the loss of the large account, it was cushioned by a RM2.32 billion growth in AUM in line with KIG’s three (3) year growth plan. This plan

OPERATIONS REVIEW

BUSINESS REVIEW

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consists of building a balanced distribution network and client segmentation, focusing on products development and enhancing customer operations and experience.

Previously a fund house with predominantly institutional clients, KIG now benefits from a more balanced client base. Last year, its retail portfolio grew to 30% from 10%, while its institutional segment accounted for approximately 40% of its operations, making its AUM less susceptible to the volatility of large investors.

KIG’s key success factors include its continuous efforts to improve its investor touch points, which consist of a combination of retail face-to-face needs-based selling via its individual distributors, and multiple online platforms. During the year, its agency force grew by 25% to one thousand five hundred and seventy-four (1,574) agents, compared to 2014. Its funds are also available through partners such as iFAST Capital Sdn Bhd, Fundsupermart.com, Phillip Mutual Berhad’s eUnittrust.com and KenWealth KIBB’s online wealth management platform.

Through its website, its clients’ portal KenEasy and its advisers’ portal AIMs, as well as mobile applications and social media, KIG is meeting customers’ increasing thirst for information, demand for multiple touch points and growing acceptance of digital solutions.

Furthermore, KIG seeks to contribute to the development of a financially savvy generation who can plan their investments and achieve financial freedom. In this regard, the division has worked with industry associations, retirement experts, financial magazines and regulators to provide training and education to clients, staff and advisers.

In terms of fund performance, KIG continued to exercise its investment philosophy of consistently outperforming itself over an economic cycle of three (3) to five (5) years by applying bottom-up stock picking strategies. As a result, despite the challenging market conditions and investment themes, KIG’s funds continued to deliver consistent superior returns.

In 2015, its flagship fund – Kenanga Growth Fund won the Best Performing Equity Malaysia Fund under the five (5) and ten (10) years categories at The Edge Thomson Reuters Lipper Fund Awards 2016. This is the fourth (4th) consecutive year that Kenanga Growth Fund has been recognised for its performance in the five (5) years category. KIG also won two (2) notable regional awards when it was awarded 2015 Malaysia Rising Star and Malaysia CIO of the Year by Asia Asset Management, a regional publication based in Hong Kong.

OPERATIONS REVIEW

(From left to right) Lau Wei Jie Wealth Management | Siti Sarizat Binti Hassan Group Human Resource | Aaron Phan Investment Banking Cynthia Woon Treasury | Jerome Khor Kenanga Deutsche Futures Sdn Bhd | Marie Suwrna Vaz Research

Raja Putra Iskandar Badlishah Bin Raja Shahrudin Kenanga Capital Sdn Bhd

(From left to right) Balvinder Kaur Harban Singh Group Company Secretarial | Cheryl Hon Group Risk Management

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K E N A N G A D E U T S C H E F U T U R E S S D N B H D ( K D F )

The year 2015 proved to be productive and rewarding for the Group’s listed derivatives business, KDF, which received recognition through domestic and international awards. It recorded a PBT of RM5.71 million, a commendable increase of 34% compared to RM4.27 million in 2014.

In an inaugural recognition, KDF was voted Emerging Market Broker of the Year 2015 at the Futures and Options World (FOW) Awards for Asia 2015 held in Singapore. The FOW judges commented that the award recognises KDF as a clear leader in the institutional market, while also acknowledging its international outreach programmes which have established back-end business connections for growth. The

award is also an endorsement of KDF’s innovation and growth contribution to the futures market, including contract, revenue and profit growth.

In the domestic market, KDF retained its leading position in the Malaysian derivatives industry for the thirteenth (13th) consecutive year, as it was awarded the Best Derivatives Trading Broker (Champion) and Best Trading Broker – Equities Derivatives (Champion) at the annual Bursa Malaysia Broker Awards 2015, during which KDF was also awarded First (1st) Runner Up in the category of Best Derivatives Clearing Broker.

During the year, Bursa Malaysia Derivatives Berhad (the Exchange) reached a new milestone with approximately fourteen (14) million

contracts traded, representing a 13% year-on-year growth. KDF garnered a market share of about 15% in terms of contract executions compared to 14% of the twelve (12) million contracts traded on the Exchange in 2014.

KDF also registered a new record high in overall execution volumes of 4.27 million contracts, a laudable 27% year-on-year increase, outperforming the 13% growth in Exchange volumes.

KDF’s success in defending its market share through growth in volume is testament to its dedication, hard work and relentless efforts, to not only echo its past performance but also to achieve stronger showing. This was attained by focusing on clients’ needs, adapting its services and becoming highly technologically integrated and sales driven, enabling the division to respond more rapidly to emerging opportunities.

Going forward, KDF will remain fully focused on the needs of its clients, as well as the quality of its team, continuing to attract, retain, groom and motivate organisational talent for the Group and the Malaysian derivatives industry as a whole.

T R E A S U R Y

The Treasury division undertook various prudent risk-taking strategies in 2015 that resulted in a net income of RM16.59 million. Its focus in 2015 was centred on liquidity management and further diversifying the Bank’s sources of funding and deposits to comfortably exceed the Basel III liquidity benchmarks set by Bank Negara Malaysia.

The Fixed Income business produced strong performance, exceeding the trading and net interest income target in 2015. The division also implemented portfolio restructuring strategies to minimise the risk of its fixed income assets and enhance the portfolio yield. Additionally, the division capitalised on securities repurchase

OPERATIONS REVIEW

(From left to right) Lau Wei Jie Wealth Management | Siti Sarizat Binti Hassan Group Human Resource | Aaron Phan Investment Banking Cynthia Woon Treasury | Jerome Khor Kenanga Deutsche Futures Sdn Bhd | Marie Suwrna Vaz Research

Raja Putra Iskandar Badlishah Bin Raja Shahrudin Kenanga Capital Sdn Bhd

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030 OPERATIONS REVIEW

transactions to reduce the funding cost for its fixed income portfolio, and by doing so it contained its average borrowing costs and maximised its net interest income.

Treasury’s Investor Sales desk also successfully placed out and secured the subscription of seven (7) primary debt issues in 2015.

In the foreign exchange business, the division took steps to re-size its risk takings as global currency movements became increasingly volatile due to the continued weak equity and commodity prices globally, coupled with the then impending Fed Rate hike.

K E N A N G A C A P I T A L G R O U P ( K C G )

Kenanga Capital Group (KCG) is the structured lending division of Kenanga Group that consists of Kenanga Capital Sdn Bhd (KC) and Kenanga Capital Islamic Sdn Bhd (KCi).

In the year under review, KC broke even despite the weak sentiments in the equity markets and the lack of corporate exercises.

KC will continue to offer alternative financing product lines by providing cash drawdown or share margin-type facilities against customers’ assets to finance their working capital needs.

A wholly-owned financing subsidiary of KC, KCi recorded an improved business revenue with the addition of new trade financing products such as bank guarantees, purchase financing and letters of credit.

W E A L T H M A N A G E M E N T ( W M )

Our WM business remains work in progress. Faced with regulatory complexities, long gestation period for business and system development, sales and asset accumulations have yet to reach its financial break-even point, registering a loss of RM8.87 million, similar to previous year’s operating loss of RM8.23 million.

During 2015, while streamlining its operating and systems infrastructure, WM continued to focus on ensuring its wealth products and services remain relevant to the individual customers. It successfully partnered six (6) additional established and reputable unit trust providers, bringing the total to seventeen (17) unit trust partners. In addition, it has six (6) Private Retirement Scheme providers, twelve (12) insurance/ takaful providers and three (3) will and trust partners, on its platform.

The division is putting in place a more cost efficient business strategy as it continues to create a broader asset class and product mix and opening of new distribution channels. The private wealth market will be its key focus in generating fee based income for the Group.

(From left to right) Chan Pui Zhen Investment Banking | Norazwan Bin Nordin Group Transformation | Shazrina Binti Abdul Kahar Wealth Management | Woo King Huat Group Credit Management

BUSINESS REVIEW


031CORPORATE RESPONSIBILITY

K & N Kenanga Holdings Berhad and its Group of Companies (Kenanga Group or the Group) recognises the role we play in building a sustainable business that contributes towards the betterment of the communities we operate in.

Guided by the philosophy to serve our various stakeholders in a more meaningful and structured manner, we continued our focus on the four (4) areas of Corporate Responsibility – Environment, Community, Marketplace and Workplace.

E N V I R O N M E N T

“At Kenanga Group, we recognise the role we play in building a sustainable business

that contributes towards the betterment of the

communities we operate in.”

Chuah Sze PhingHead of Group Marketing

& Communications

L I G H T S O F F ! I N V E S T A N H O U R F O R E A R T H H O U R

Kenanga Group participated in Earth Hour for the seventh (7th) consecutive year in 2015. In our continuous efforts to create awareness on the preservation of our environment, green tips were disseminated to employees leading up to Earth Hour.

All lighted signages at the Group’s premises were switched off on 28 March 2015 from 8:30 p.m. to 9:30 p.m. Employees nationwide were also encouraged to participate by switching off non-essential lighting at their homes during the period.

N A T U R E A P P R E C I A T I O N S U N D A Y

In conjunction with World Environment Day celebrated on 5 June annually, close to one hundred (100) employees and their family members participated in a Nature Appreciation Sunday on 14 June 2015 at the Forest Research Institute Malaysia (FRIM).

Fifty (50) hardwood saplings were planted. Additionally, participants were led on a one-and-a-half (1.5) kilometre guided hike to the Canopy Tower to experience the Canopy Walk, one of FRIM’s attractions.

P A P E R L E S S S O L U T I O N

In April 2015, Kenanga Group implemented a paperless meeting solution on iPad for our Board, Board Committee and Management Committee meetings. The solution was designed with the environment in mind and to reduce Kenanga Group’s carbon footprint.

BUSINESS REVIEW

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2015

032 CORPORATE RESPONSIBILITY

C O M M U N I T Y

H E L P I N G S T U D E N T S A F F E C T E D B Y T H E F L O O D S

Malaysia experienced one of its worst floods from mid-December 2014 to early January 2015. As the timing of the floods coincided with the start of the school year, many students were without stationery, books and school uniforms.

Kenanga Group decided to reach out to some of these students via our Back to School Donation Drive: Relief for East Coast Malaysia. At the end of this ten (10) day campaign, Kenanga Group employees pledged over RM40,000. The Group matched the employees’ generosity, enabling us to help close to seven hundred (700) primary school children.

Kenanga Group staff were at Sekolah Kebangsaan Bunut Payung, Kota Bahru and Sekolah Kebangsaan Lata Rek, Kuala Krai on 5 and 12 February 2015 respectively to distribute the stationery, exercise books and school uniforms to these students in need.

B L O O D D O N A T I O N D R I V E

Annually, to commemorate World Blood Donor Day on 14 June, the Group conducts blood donation drives in collaboration with Pusat Darah Negara. In 2015, sixty-nine (69) volunteers participated with a total of sixty (60) bags of blood being collected.

B R I N G I N G J O Y T O U N D E R P R I V I L E G E D C H I L D R E N D U R I N G R A M A D H A N

Kenanga Group hosted seventy (70) underprivileged children of Yayasan Chow Kit to a buka puasa event on 3 July 2015 at the Pusat Kreatif Kanak-Kanak Tuanku Bainun. At the event, the children were entertained by performances, as well as arts and craft activities.

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D I A L O G U E I N T H E D A R K : I N S U P P O R T O F A S O C I A L E N T E R P R I S E

In 2015, we renewed our collaboration with Dialogue in the Dark (DID), a worldwide social enterprise that aims to elevate the lives of the visually impaired by empowering them with relevant skills.

We supported DID’s Simply See programme that provided optical check-ups at thirty (30) schools nationwide. Free visual aids were distributed to underprivileged students. Kenanga Group also participated in its Cuisine in the Dark event that aimed to raise funds for the Simply See programme. For more information, visit www.did.my.

S U P P O R T I N G C A N C E R S U R V I V O R S

Fifteen (15) employees and their family members from the Melaka and Batu Berendam branches took part in the

organised by the National Cancer Society Malaysia (NCSM).

Kenanga Group also donated to NCSM to support their efforts in creating awareness of the disease and to provide care and support to those affected by cancer.

K E N A N G A G R O U P E M P L O Y E E S R U N F O R C H A R I T Y

The Group participated in The Bursa Bull Charge on 20 August 2015 with a team of four (4) runners. More than thirty (30) employees were on ground to cheer on the runners. Through the charity run, Bursa Malaysia Berhad (Bursa Malaysia) raised a total of RM2.20 million which was channelled to seven (7) beneficiaries.

O T H E R P H I L A N T H R O P I C C O N T R I B U T I O N S

Throughout 2015, Kenanga Group donated to numerous charitable organisations including PRIDE Foundation, Yayasan Orang Kurang Upaya Kelantan, Yayasan Sukarelawan Siswa, as well as the Thalassaemia Welfare and Medical Fund.

C O N T I N U O U S S U P P O R T O F T H E M A L A Y S I A N E L I T E

T R I A T H L O N T E A M

Kenanga Group sponsored the Malaysian Elite Triathlon Team for the third (3rd) consecutive year. The sponsorship included the team’s training and coaching, as well as race expenses.

This team represented our country in various international triathlon competitions and one of the triathletes in the team won a silver medal in the 2015 South East Asian Games in Singapore.

C O M M U N I T Y

CORPORATE RESPONSIBILITY

BUSINESS REVIEW

K & N KENANGA


2015


P R O M O T I N G F I N A N C I A L L I T E R A C Y

Kenanga Group continued its efforts in 2015 to educate the public on investing and financial planning through various platforms.

Our investment banking arm, Kenanga Investment Bank Berhad (KIBB or the Bank) organised a total of eleven (11) workshops, both independently and in collaboration with Bursa Malaysia, for close to one thousand (1,000) new and existing retail clients. Held in major cities throughout Malaysia, these workshops focused on various topics including fundamental analysis, charting tools and online trading.

KIBB also organised five (5) Global Market Outlook Seminars throughout July 2015. More than seven hundred (700) participants, made up mostly of KIBB’s retail clients were briefed on the global market sentiment, investment strategies and opportunities.

Meanwhile, the Group’s fund management arm, Kenanga Investors Berhad and its subsidiaries (Kenanga Investors Group or KIG) held five (5) Financial EDU talks at local universities namely Sunway University, Nilai University, HELP University, SEGi University & Colleges and INTI International University & Colleges. More than two hundred (200) students attended the talks which aimed to educate them on financial planning and to offer them career opportunities as financial planners/ advisers.

KIG also actively participated as guest speakers and panellists at industry seminars and conferences on topics such as retirement planning and investment solutions.

D I S S E M I N A T I N G I N F O R M A T I O N O N I N V E S T M E N T T H R O U G H

S O C I A L M E D I A

We continued to produce a series of dynamic market outlook video commentaries (webisodes) throughout 2015, delivering the contents of our award-winning research reports in a digestible, bite-sized manner.

These webisodes, ranging from two (2) to three (3) minutes each, were uploaded on our Kenanga Channel on YouTube, making investment and financial information more accessible to a wider audience. Last year, five (5) webisodes were filmed with the most popular episode reaching close to one hundred and fifty thousand (150,000) viewers.

The Group’s investment workshops, seminars and interviews are also available on Kenanga Channel at www.youtube.com/user/KenangaGroup.

In late 2014, the Group launched its Facebook page. Frequent posts on investment tips are channeled to engage with more than thirty-four thousand (34,000) Kenanga Group Facebook page followers.

Both these initiatives were recognised at the CMO Asia Awards for Excellence in Social Media & Digital Marketing Awards 2015, clinching Best Use of Online Video Channel and Best Use of Facebook.

M A R K E T P L A C E

BUSINESS REVIEW



U N D E R S T A N D I N G S H A R E T R A D I N G T H R O U G H G A M I F I C A T I O N

Kenanga Investment Bank Berhad (KIBB) launched the KenTrade Trading Challenge II (the Challenge) on 29 September 2015. In its second (2nd) year, the Challenge garnered more than eighteen thousand (18,000) participants nationwide, a 50% increase relative to last year.

Based on real-time market data from Bursa Malaysia Securities Berhad and aimed at simulating real-life trading, the Challenge was designed to educate and promote the equity market and share trading to the public, especially youths, in an entertaining and competitive format.

The grand prize was a Volkswagen Beetle worth RM135,888.

S H A R E H O L D E R C O M M U N I C A T I O N S

K & N Kenanga Holdings Berhad convened its twenty-first (21st) Annual General Meeting on 28 May 2015 at the Royale Chulan Kuala Lumpur. More than four hundred (400) shareholders and proxies attended the event. They were briefed by our Senior Management team on the Group’s past year performance and plans moving forward. Booths were also set up at the meeting to disseminate information on the products and services offered by the Group.

Our annual reports and financial reports are available on our corporate website, www.kenanga.com.my for easy access by shareholders.

M A R K E T P L A C E

BUSINESS REVIEW

K & N KENANGA


2015


H E L P I N G S T A F F I N N E E D

During the East Coast floods that displaced more than two hundred thousand (200,000) people, several Kenanga Group employees’ families were also affected.

We identified twelve (12) employees whose families were affected and they each were provided with cash aid.

I N S U P P O R T O F A F A M I LY - F R I E N D LY C U L T U R E

Kenanga Group continued to promote a family-friendly culture. Employees and their families were treated to the screening of Avengers: Age of Ultron in April 2015. More than nine hundred and fifty (950) employees and their family members in Klang Valley attended the event. We also extended the movie-going experience to branches outside the Klang Valley via cinema vouchers.

Additionally, we held our annual Family Day in November 2015 at Sunway Lagoon, which was attended by more than one thousand one hundred (1,100) employees and their families.

P R O M O T I N G T E A M W O R K V I A S P O R T S

In its second (2nd) year, the Kenanga Group Chairman’s Cup 2015 was launched in March 2015. In the year-long event, employees were divided into five (5) teams where they competed in a total of ten (10) sporting activities. This event was introduced to encourage healthy lifestyles, friendly competition and teamwork amongst employees.

E N C O U R A G I N G A H E A L T H Y L I F E S T Y L E A T W O R KWe continued with our Kenanga Health & Wellness Programme. Since the launch of the programme in mid-2014, two (2) health screenings and eight (8) health talks were held. It ended with a prize presentation ceremony to the Top Ten (10) Wellness Champions who actively participated in the programme and showed improvements in their health based on their screening results.

W O R K P L A C E

BUSINESS REVIEW



S T R E N G T H T H R O U G H D I V E R S I T Y

Kenanga Group is a melting pot of over one thousand (1,000) employees from diverse backgrounds, age groups, interests, races and cultures.

To foster greater appreciation for cultural diversity and to strengthen solidarity amongst employees, the Group celebrates all major festivals such as Chinese New Year, Hari Raya and Deepavali with our employees.

In November, the Group held for the first (1st) time, Kenanga Awards Day, an event to recognise and celebrate employees’ achievements. One (1) employee was presented with the thirty (30) year Long Service Award while twelve (12) employees received the twenty (20) year Long Service Award. This was also the prize presentation platform for the winning teams of the Kenanga Group Chairman’s Cup 2015.

K E E P I N G E M P L O Y E E S I N F O R M E DKenanga Group continued with its bi-annual newsletter, Reach that complements K News, the online bulletin that disseminates the Group’s latest achievements and business news to employees. In 2015, close to fifty (50) issues of K News were circulated.

E N H A N C I N G A W A R E N E S S O N G O V E R N A N C E A N D C O M P L I A N C E

A M O N G S T E M P L O Y E E S

To continue promoting responsible behaviour, we conducted training on Anti-Money Laundering & Counter Financing of Terrorism (AML/CFT), the Personal Data Protection Act 2010 and the Competition Act 2010. In addition, mandatory compliance training on the Group Whistleblowing Policy, as well as two (2) regulatory compliance e-tests were executed.

All new employees were required to attend an on-boarding programme, which includes several modules on regulatory and legislative compliance, as well as governance.

Regulatory/ compliance tests, which are compulsory for all Kenanga Group employees of executive level and above, have been rolled out twice a year since 2012 and forms part of the employees’ Key Performance Indicators.

In 2015, the tests, which were conducted online, were on the subjects of AML/CFT, as well as Ethics and Governance. Overall, Kenanga Group recorded 98.5% participation with 95% achieving the required minimum score.

T A L E N T D E V E L O P M E N TKenanga Group believes that learning is a life-long process and we endeavour to provide relevant learning opportunities to our employees. Throughout the year, our employees underwent more than thirty thousand (30,000) training hours in various courses to enhance their technical, organisational and leadership skills.

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(From left to right) Meagan Bong Investment Banking | Ranjit Singh Gill Investment Banking | Nuraisha Fariza Binti Salleh Kenanga Investors Berhad



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COMMITTED TOWARDS

SUSTAINABLEGOVERNANCE

CORPORATE ACCOUNTABILITY

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The Board of Directors (the Board) regards corporate governance as vital to the success of K & N Kenanga Holdings Berhad’s (Kenanga or the Company) business and is unreservedly committed to applying the principles necessary to ensure that the principles of good governance is practised in all of its business dealings.

The Board understands that the responsibility for good corporate governance rests with them. Therefore, the Board strives to follow the principles and best practices of corporate governance and ensures that Kenanga complies with the various guidelines issued by Bank Negara Malaysia (BNM), Bursa Malaysia Securities Berhad (Bursa Securities) and the Securities Commission Malaysia (SC).

The Board is also committed to continuously undertake the appropriate actions to embed the said principles and recommendations of the Malaysian Code of Corporate Governance 2012 (MCCG 2012) into the Company’s existing policies and procedures.

1. ESTABLISHMENT OF CLEAR ROLES AND RESPONSIBILITIES

1.1 Establishment of Clear Functions Reserved for Board and Management

The current composition of the Board enables it to have an effective oversight over Management and provides it with the ability to make decisions in the best interests of the shareholders, as it is free from interests or influences which may conflict with its duty.

The Board is independent of the Management and is not involved in any business or other relationship or circumstances that could materially interfere with the exercise of objective, unfettered or independent judgment.

The Non-Executive Directors are not employees of Kenanga and they do not participate in the day-to-day management or the business activities of Kenanga. They bring an external perspective; constructively challenge and help develop proposals on strategy; scrutinise the performance of the Management in meeting approved goals and objectives; as well as monitor the risk profile of Kenanga’s business and the reporting of monthly business performance.

The Board is charged with leading and guiding Kenanga in an effective and responsible manner. Each

STATEMENT ON CORPORATE GOVERNANCE

Director has a legal duty to act in the best interest of Kenanga. The Directors, collectively and individually, are aware of their responsibilities to shareholders and stakeholders for the manner in which the affairs of Kenanga are managed. The Board sets Kenanga’s values and standards and ensures that its obligations to its shareholders and stakeholders are clearly understood and met.

The Board reserves full decision-making powers

notwithstanding any delegation of authority to the Management or to Committees on matters relating to amongst others, strategies, business plans and budget; significant policies; conflict of interest issues relating to substantial shareholder and/or a Director; material acquisitions and disposition of assets not in the ordinary course of business; investment in capital projects; authority levels; risk management policies; as well as key human resource issues. The Board’s reserved matters are also reflected in the Board Charter.

In discharging its roles and responsibilities, the Board has established specialised Board Committees to oversee critical or major functional areas and to address matters, which require detailed review or in-depth consideration. Although the Board has delegated certain duties to the Board Committees, it remains responsible for the decisions of these committees.

In supporting the overall operational management and businesses of the Company, the Board had also established the following Management Committees comprising Senior Management personnels within Kenanga Group, with specific Terms of Reference outlining their roles and responsibilities within the Group Approving Authority Framework approved by the Board:

a. Group Executive Committee;b. Group Risk Committee;c. Group Credit Committee;d. Group Operational Risk Committee;e. Group Products Committee;f. Group Tender & Procurement Committee;g. Group Information Technology Steering

Committee;h. Group Disciplinary Committee;i. Group Talent Committee;j. Equity Risk Committee of KIBB; andk. Asset & Liability Committee of KIBB.



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1.2 Clear Roles and Responsibilities of the Board

a. Reviewing and Adoption of Strategies and Business Plans

The Board approves Kenanga’s objectives, strategies and business plans, which take into account Kenanga’s risk appetite, risk management capabilities, financial resources, Management capabilities, as well as market conditions and ensure that performance against plans is regularly reviewed and monitored.

On 3 December 2015, the Board, upon detailed deliberations, had approved the strategies and business plans, as well as the Budget for the financial year ended 31 December 2016 tabled by the Management.

Based on the approved strategies and business plans, Key Performance Indicators (KPIs) were then set to define, measure and monitor the Management’s performance and progress towards achieving Kenanga’s goals.

b. Overseeing the Conduct of Business

In facilitating the Board in the discharge of its responsibility of overseeing the conduct of business of Kenanga Group, the Board at its quarterly meetings were briefed by the Group Managing Director (GMD) on the financial performance of Kenanga and its subsidiaries, as well as associate companies. Nevertheless, at the investment banking’s level, i.e. Kenanga Investment Bank Berhad (KIBB), the financial performance was reviewed by KIBB Board on a monthly basis. This enabled the Board to assess the Management’s performance against the budget set for the financial year.

In terms of the status of Kenanga Group’s compliance with relevant regulatory requirements, the Board is updated on a quarterly basis by the Group Chief Regulatory Officer, on the status of any regulatory audit conducted by the relevant regulators on regulated entities within Kenanga Group namely KIBB, Kenanga Investors Berhad, Kenanga Islamic Investors Berhad and Kenanga Deutsche Futures Sdn Bhd.

During this quarterly update, the Board would deliberate on the recommendations issued by the regulators arising from their respective audits, as well as the Management’s response to those recommendations and endorse the action plans identified to address any gaps identified by the regulators during their audits.

c. Risk Management and Internal Controls

The Board is responsible to ensure that Kenanga has in place effective and comprehensive risk management policies, procedures and infrastructure to identify, measure, monitor and control the various types of risks undertaken by Kenanga.

In discharging this responsibility, the Board approves and periodically reviews the risk management capabilities of Kenanga to ensure their ability to support Kenanga’ business activities and any expansion thereof.

In this respect, the Board is supported by the Board Risk Committee (BRC) which was established at KIBB’s level.

The BRC comprises the following three (3) members, two (2) of whom are Independent Non-Executive Directors and one (1) of whom is a Non-Independent Non-Executive Director:

• Luigi Fortunato Ghirardello Chairman, Independent Non-Executive Director;

• Ismail Harith Merican Member, Non-Independent Non-Executive

Director; and

• Luk Wai Hong, William Member, Independent Non-Executive Director.

Under its Terms of Reference, the BRC is responsible to:

i. review and recommend risk management strategies, policies and risk tolerance for the Board’s approval;

ii. review and assess adequacy of risk management policies and framework in identifying, measuring, monitoring and controlling risk and the extent to which these are operating effectively;



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iii. ensure that the infrastructure, resources and systems are in place for risk management, that is, to ensure that the staff responsible for implementing risk management systems perform those duties independently of Kenanga’s risk taking activities;

iv. review the Management’s periodic reports on risk exposure, risk portfolio composition and risk management activities;

v. review significant changes to risk assessment methodologies;

vi. review high level risk exposures, risk portfolio composition and to advise the Board as to whether these are within the tolerance level of the Board;

vii. review periodically, the on-balance sheet and off-balance sheet risk exposure profiles (including derivatives, guarantees and settlement exposures), assess current and future risk environment, and set the short-term risk positioning strategy in response to changing events for credit risk;

viii. review periodically, Kenanga’s regulatory capital needs in the light of current and future business demands, as well as potential erosion of capital for regulatory capital risk;

ix. review periodically, the environment, the key factors that may affect the outcome of the original strategy and set the medium-term risk positioning strategy in response to changing events for strategic risk; and

x. assess Kenanga’s ability to accommodate risks within the tolerance level under the normal and stress scenario, in particular, in view of future business, transaction volumes, as well as to explore risk mitigating solutions.

During the financial year under review, the BRC which was scheduled to meet on a bi-monthly basis with ad-hoc meetings held, as and when required, had met eight (8) times and the details of members’ attendance at these BRC meetings are provided on page 55 of this Annual Report.

d. Succession Planning

i. Board and Board Committee

The Board had in October 2015 formalised the Board Succession Planning Framework which entails the guiding principles for effective succession planning, as well as the detailed procedure in ensuring a smooth transition in the Board’s process and functioning as existing Directors leave the Board and new ones come on board.

ii. Senior Management

In July 2015, the Board had, upon the Group Nomination & Remuneration Committee (NRC)’s recommendation, approved the Talent and Succession Management Framework and Methodology for Kenanga Group, which aims at ensuring ready successors for leadership positions capable of driving business growth and the achievement of Kenanga Group’s strategic business plan, ensuring a pool of qualified and competent staff prepared and ready to fill up critical positions within the Group as required; and ensuring effective development, engagement and retention of high potential employees.

e. Investor Relations and Shareholder Communications

The Board is committed to providing the shareholders, investors and other stakeholders with comprehensive, timely and equal access to information on Kenanga Group’s activities to enable them to make informed investment decisions.

The Company employs a wide range of communication channels such as direct communication and publication of all relevant Group information on its website at www.kenanga.com.my. The Company utilises its corporate website as a means of providing information to its shareholders and the broader investment community.

The Company disseminates its Annual Report in a CD-ROM format together with a summarised version of the Financial Statements, Notice of Annual General Meeting (AGM) and Proxy Form, in order to facilitate shareholders’ access to such key information.




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Shareholders are encouraged to attend the AGM and any Extraordinary General Meeting (EGM) of the Company and to use these opportunities to raise questions and vote on important matters affecting the Group, including the election of Directors, the receipt of the Audited Financial Statements, as well as related party transactions and acquisitions. The External Auditors and advisers also attend the AGM and EGM and are available to answer any queries.

Apart from the above engagement with stakeholders through Annual Reports and general meetings, the Company also makes announcements relating to the quarterly results and other relevant announcements to Bursa Securities via Bursa LINK to provide stakeholders with material key information which could affect their decision making, thus enhancing the level of the Company’s transparency.

In addition, in 2014, Kenanga Group has also launched its Facebook page which offers investment tips to its followers.

The Board strengthens its lines of communication with shareholders and stakeholders through the Senior Independent Director, who takes heed of their concerns on matters related to corporate governance and the Group’s performance.

Currently, Datuk Kevin How Kow is the Senior Independent Non-Executive Director, to whom shareholders and stakeholders may convey their concerns regarding the Group. He is also a member of the NRC, Chairman of the Audit Committee (AC) and was the Chairman of the BRC of KIBB until 25 September 2013.

He can be reached via email at: [email protected]

f. Adequacy and Integrity of Management Information and Internal Control

The Board recognises the fact that the ultimate responsibility for ensuring a sound internal control system and reviewing the effectiveness of the system lies with the Board. The Company’s inherent system of internal control is designed to manage, rather than eliminate, the risk of failure

to achieve the Company’s corporate objectives, as well as to safeguard the shareholders’ investments and the Company’s assets.

The details of the Company’s internal control system and framework are set out in the Statement on Risk Management and Internal Control appearing on pages 71 to 73 of this Annual Report.

1.3 Establishment and Implementation of Code of Conduct

a. Conflict of Interest Situation

The Board had established the Group Policy and Procedures on Related Party Transactions to govern related party transactions and the Group Conflict Management Policy to govern conflicts of interest situations that prohibit activities and relationships that diminish the quality of corporate governance, such as conflicts of interest situations, corruption and bribery, as well as providing preferential treatment to related parties and other favoured entities.

b. Code of Ethics and Conduct

In view of the increasing complexity of business environment and stricter regulatory landscape, as well as the greater demand for reasonable competence amongst its Directors, the Board had formalised its own Group Code of Ethics and Conduct for Directors (Directors’ Code of Conduct) in accordance with the code of conduct expected of Directors as set out in BNM’s Guidelines on the Code of Conduct for Directors, Officers and Employees in Banking Industry, the Companies Act, 1965, as well as the Code of Ethics for Directors issued by the Companies Commission of Malaysia.

The Board has also established the Group Code of Ethics and Conduct for Employees (Employees’ Code of Conduct) which has been communicated to all employees and posted onto Kenanga Group’s intranet for easy reference by the Employees.



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Both the Directors’ Code of Conduct and the Employees’ Code of Conduct (collectively referred to as “the Codes”), were formulated to enhance the standard of corporate governance and corporate behaviour. The establishment of a standard of ethical behaviour for Directors and Employees is based on trustworthiness and values that can be accepted, which are held or upheld by any one (1) person; whilst upholding the spirit of responsibility in line with the legislation, regulations and guidelines for administrating the Company.

The primary purpose of the Codes are to aid the identification of the areas and situations where public trust and confidence might be compromised or a law might be violated and to reiterate the high standards of conduct that are associated with ethical business practices, as well as to set forth policies and guidelines governing such situations.

The policies and guidelines enumerated therein are principled on promoting best ethical conduct as follows:

i. Avoiding conflicts of interest, or potential conflicts, between Director’s or Employee’s personal interests and the interests of Kenanga Group, its shareholders or Clients;

ii. Avoiding misuse of position of Director/ employees;

iii. Keeping Material Non-Public and Price Sensitive Information confidential and secure to avoid misuse of such information;

iv. Ensuring completeness and accuracy of Kenanga Group’s relevant records;

v. Properly caring for and protecting the properties and assets of Kenanga Group; and

vi. Prompting reporting of any knowledge or information about unethical business conduct and suspected commission of crimes.

On an annual basis, each Director, as well as Employee will be required to execute a declaration on compliance with the Codes to indicate that they have read and fully understood the requirements of the Code and undertake to comply by the terms of the Code and the terms of other policies and procedures of Kenanga Group for the time

being in force and as may be adopted from time to time, which shall constitute as a condition of their appointment and employment with Kenanga Group, respectively.

The Directors’ Code of Conduct has also been posted on Kenanga Group’s corporate website www.kenanga.com.my.

c. Whistleblowing Policy

The enforcement of the Whistleblower Protection Act 2010, furnished an external reporting system to all Employees to make a disclosure of any malpractice to any enforcement agency while being accorded the necessary protection. Bursa Malaysia Berhad (Bursa Malaysia) had subsequently via the Second (2nd) Edition of the Corporate Governance Guide urged listed companies to have in place a “Whistleblowing Mechanism” as a form of internal system to ensure compliance with the organisation’s Code of Ethics. Arising therefrom the Group Whistleblowing Policy & Guidance Notes (Whistleblowing Policy) has been developed.

The Whistleblowing Policy serves as an essential part of Kenanga Group’s internal control system setting out a framework for all Employees of Kenanga Group to report any concerns about any malpractice within Kenanga Group.

The successful implementation of the Whistleblowing Policy would tantamount to an early warning system within Kenanga Group to eradicate improper conduct before causing major losses or exposing Kenanga Group to devastating negative publicity.

It also helps to nurture a good organisational culture within Kenanga Group and develop a culture of openness, transparency, accountability and integrity, which ultimately formulates standards of corporate behaviour creating an ethical corporate climate. A transparent management system within Kenanga Group shall indirectly result in the upgrading of the Management’s standard of discipline and hence, instill confidence in investors.

A summary of the Whistleblowing Policy is available on Kenanga Group’s corporate website at www.kenanga.com.my.




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1.4 Access to Information and Advice

The Board meets as soon as Kenanga’s quarterly and annual results are finalised in order to review and approve the results for submission to BNM. Special Board meetings may be convened as and when necessary to consider urgent proposals or matters that require the Board’s expeditious review and consideration.

To facilitate productive and meaningful deliberation, the proceedings of the Board meetings are conducted in accordance with a structured agenda. The agenda and the Board papers are circulated to the Directors well before the Board meeting to allow time for Directors to review the Board papers from the Management or Company Secretary or if deemed necessary to take up independent professional advice at Kenanga’s expenses.

In order to maintain confidentiality, meeting papers on issues or corporate proposals which are deemed highly confidential and top secret, will only be distributed to Directors at the Board meeting itself or put in a sealed envelope with strict instruction to be opened only by the Directors themselves. In addition, the Directors have a duty to declare immediately to the Board should they have interest in any transaction to be entered into directly or indirectly. They are required to abstain from getting involved in the deliberations and decisions of the Board on the transaction in question, and to ensure that they do not exercise any influence over the Board in respect of that transaction.

In the event a corporate proposal is required to be approved by shareholders, interested Directors are required to abstain from voting in respect of their shareholdings in Kenanga on resolutions pertaining to the corporate proposal. They are to further ensure that any persons connected to them, similarly abstain from voting on such resolutions.

The Board has direct access to the Senior Management and has unrestricted and immediate access to any information relating to the Group’s business and affairs in the discharge of their duties. The relevant Senior Management personnel are invited to attend the Board meetings to report to the Board on matters relating to their areas of responsibility, and to brief and provide details to the Directors on recommendations or reports submitted to the Board.

With the advancement of technologies and as part of Kenanga Group’s efforts in continuous enhancements of its processes for efficiency, the Board had in April 2015 implemented a paperless meeting solution on iPad for Board, Board Committee and Management Committee meetings of Kenanga Group.

The solution was designed with the environment in mind. The amount of papers and ink that are wasted, causing excess waste and pollution to the environment could be averted by moving digital. It will also contribute towards reducing Kenanga Group’s carbon footprint, and increasing Kenanga Group’s green image.

1.5 Qualified and Competent Company Secretary

The Board is supported by a fully qualified and competent Company Secretary who is a Chartered Secretary and an Associate Member of the Malaysian Association of the Institute of Chartered Secretaries and Administrators, with more than nineteen (19) years of experience in company secretarial practice.

The Company Secretary attends all Board meetings and ensures that such meetings are appropriately convened, and that accurate and proper records of the proceedings and resolutions passed are taken and maintained in the statutory register at the registered office of Kenanga. The Company Secretary also facilitates timely communication of the decisions made and policies set by the Board at Board meetings to the Senior Management for action. The Company Secretary works closely with the Management to ensure that there is timely and appropriate information flow not only within Kenanga but also to the Board and Board Committees, and between the Non-Executive Directors and Management.

The Directors have ready and unrestricted access to the advice and services of the Company Secretary who act as a primary point of contact and source of advice/ information for Non-Executive Directors with regard to the Company and its activities in order to assist them in their decision making process and enable them to discharge their duties effectively. The Board is also regularly updated on new statutes and directives issued by the regulatory authorities.



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1.6 Board Charter

Being a public listed company on Bursa Securities and a Financial Holding Company under the purview of BNM, the Board is committed to ensuring the full implementation of corporate governance principles and recommendations as encapsulated in the MCCG 2012, Bursa Securities’ Main Market Listing Requirements (MMLR), Corporate Governance Guide, Second (2nd) Edition and Practice Notes, as well as Financial Services Act 2013 and BNM’s Guidelines on Corporate Governance for Licensed Institutions (Guidelines on Corporate Governance).

Taking cognisance of the importance of corporate governance, the Board had established the Board Charter to ensure that all Board members acting on behalf of Kenanga are aware of their duties and responsibilities as Board members and the various legislations and regulations affecting their conduct and that the principles and practices of good corporate governance are applied in all their dealings in respect, and on behalf of, Kenanga.

In pursuit of the ideals in the Board Charter, the intention is to exceed “minimum legal requirements” with due consideration to recognised standards of best practices locally and internationally.

The Board Charter is reviewed on a regular basis to ensure its relevance with the latest statutory and regulatory requirements, as well as Kenanga Group’s operational and business direction.

The Board Charter which was approved by the Board on 30 October 2013 can be found on Kenanga Group’s corporate website at www.kenanga.com.my.

2. STRENGTHENING COMPOSITION

2.1 Establishment of the Group Nomination of Remuneration Committee

a. Composition of the NRC

The Board has established the NRC comprising the following three (3) Independent Non-Executive Directors and two (2) Non-Independent Non-

Executive Directors with specific Terms of Reference outlining its roles and responsibilities, as well as authority:

• Izlan Bin Izhab Chairman, Independent Non-Executive Director (Appointed as Chairman of NRC on 30 January 2015);

• Datuk Syed Ahmad Alwee Alsree Member, Non-Independent Non-Executive

Director;

• Datuk Kevin How Kow Member, Independent Non-Executive Director;

• Dato’ Richard Alexander John Curtis Member, Non-Independent Non-Executive

Director; and

• Luigi Fortunato Ghirardello Member, Independent Non-Executive Director (Appointed as Member of NRC on 30 January 2015).

b. NRC’s Roles and Responsibilities

With regard to the nomination and appointment of Directors, Board Committee members, the GMD and key Senior Management personnel of Kenanga Group, the NRC’s responsibilities as stipulated in its Terms of Reference include the establishment of minimum requirements for the Boards, the GMD and key Senior Management personnel, such as the required mix of skills, experience, qualifications and other core competencies required of them. The requirement and criteria shall be approved by the Board.

In terms of the remuneration of Directors, Board Committee members, the GMD and key Senior Management personnel, it is the responsibility of the NRC to recommend to the Board for approval, a remuneration framework for Directors, Board Committee members, the GMD and key Senior Management personnel which supports the Group’s culture, objectives and strategy and reflects the responsibility and commitment, which goes hand-in-hand with membership of the Boards of entities within the Group and responsibilities of the GMD and key Senior Management personnel.




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c. Summary of NRC’s Activities in 2015

During the financial year under review, in discharging its responsibilities as encapsulated in its Terms of Reference, the NRC had deliberated and where appropriate, recommended to the Board for approval, proposals relating to, amongst others, the following matters:

• Directors’ fees and meeting allowances;

• retirement and re-appointments/ re-elections of Directors for shareholders’ approval at AGMs of companies within Kenanga Group;

• re-appointments of Non-Executive Directors of Kenanga and KIBB for submission to BNM upon expiry of tenure imposed by BNM;

• renewal of contracts of employments of Chief Executive Officers (CEOs) of subsidiaries and key Senior Management personnel;

• KPIs setting and performance appraisals for the GMD and his direct reports, as well as for the direct reports of the Board and Board Committees;

• performance bonus and annual salary increment;

• performance evaluation of Board, Board Committees and individual Directors;

• Board succession planning framework;

• annual Training Calendar for Directors;

• talent and succession management review and successor development updates;

• Group Policy and Group Procedures on Fit and Proper Criteria for Management, Key Responsible Persons (KRPs) and Company Secretary; and

• annual assessment of the Fitness & Propriety of Management KRPs and Company Secretary of Kenanga Group for 2015.

The effectiveness of the NRC was assessed by the Board on an annual basis in accordance with the

Board Performance Evaluation Framework approved by the Board. Based on the assessment conducted in 2015, the Board was satisfied that the NRC had performed its function and discharged its roles and responsibilities in accordance with its Terms of Reference.

During the financial year under review, the NRC which was scheduled to meet on a quarterly basis, with ad-hoc meetings held as and when required, had met seven (7) times and the details of members’ attendance at these NRC meetings are as stated on page 54 of this Annual Report.

d. Policy on Board Composition

Under the Board Appointment Framework, the NRC will review the length of service, expiration of term, as well as, Board Committee positions held by Directors to provide the NRC and the Board with a clear picture of any upcoming vacancies which will need to be filled.

As some vacancies will require recruiting from outside the Board, an up‐to‐date skills matrix will help to identify the skills of current Board members, as well as those of departing members which will need to be replaced.

In relation thereof, a skills matrix of the Board and an ‘evergreen’ list of potential Board members of all entities within Kenanga Group shall be established, maintained and reviewed regularly to facilitate the recruitment process.

e. Policy on Tenure of Independent Director

As stipulated in the Board Charter, the tenure of an Independent Director shall not exceed a cumulative term of nine (9) years.

Notwithstanding the above, upon completion of the nine (9) years, an Independent Director may continue to serve on the Board if the NRC has concurred and the Board has approved, after the annual assessment, that the services of the Independent Director are still required by Kenanga and further, that the Director concerned remains free of any business or other relationship with Kenanga which could be reasonably perceived as to materially interfere with his/ her exercise of unfettered and independent judgement.



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The re-election of a long serving Independent Director who has served in that capacity for more than nine (9) years, upon retirement by rotation or re-appointment pursuant to Section 129(6) of the Companies Act, 1965 at the AGM of Kenanga, shall be subject to strong justification being provided and presented to the shareholders for approval.

f. Boardroom Diversity

The Board through the NRC shall take appropriate measures to ensure that Boardroom diversity, including gender diversity, forms part of the selection and recruitment for new Directors and shall explicitly disclose in Kenanga’s Annual Report its gender diversity policies and targets and the measures taken to meet those targets.

2.2 Develop, Maintain and Review Criteria for Recruitment

a. Board Appointment Framework

The Board, via the NRC, has put in place a formal and transparent framework governing the appointments of new Directors wherein the NRC will recommend the appointment of suitable candidate as Director of the Company and its subsidiaries to the Board for approval.

The procedures in relation to Board appointment which are embedded in the Board Succession Planning Framework, starts with the review by the NRC of the status of the Board composition. The NRC will then report its findings and recommend the appropriate action to be taken to the Board.

If the NRC anticipates that a Director/ Board Committee member position shall become vacant within the next twelve (12) months (whether by reason of an announced intent to retire or otherwise), or if a Director/ Board Committee member position shall suddenly become vacant (whether by death or otherwise), the NRC shall as soon as reasonably practicable, recommend to the Board, nominees for election as Director/ Board Committee member.

When identifying potential candidates for nomination as Director, the NRC may consult whatever sources it deems appropriate, including, but not limited to, referrals from existing Directors, recommendations from a third-party search firm, or suggestions from major shareholders.

The NRC shall make an initial assessment of each candidate. It shall select one (1) or more candidates from a pool for an initial interview by at least one (1) member of the NRC.

When the NRC identifies an individual that it believes meet the criteria set forth below and should be elected Director, it will notify the Board and arrange for the individual to be interviewed by the rest of the Board members who are not members of the NRC, if necessary.

The criteria considered during the selection of new Director include, inter alia, the following:

i. Technical know-how, diverse skills or professional experience in the financial services industry or to some extent, understanding of the nature of the business that Kenanga is involved in, to create a more conducive environment for informed decision-making;

ii. Mix of skills and experiences of current Board members whilst taking into consideration the current and future needs of Kenanga, and boardroom diversity (including gender diversity);

iii. Board size and balance of Executive versus Non-Executive Directors, as well as Independent versus Non-Independent Directors;

iv. Current composition of the Board and Board Committees, taking into consideration the independence requirements for Board and Board Committee membership in accordance with the relevant regulatory requirements;

v. Probity, personal integrity and reputation, as well as personal qualities such as honesty, integrity, diligence, independence of mind and fairness;




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vi. Demonstration of competence and capability in relation to the necessary skills, experience, ability and commitment to carry out the role as a director;

vii. Financial integrity – the candidate’s demonstration of prudent management of his/ her debts or financial affairs; and

viii. In the case of an Independent Director, additionally, the fulfilment of the independence criteria as stipulated in the MMLR and BNM’s Guidelines on Corporate Governance.

For re-appointments of Directors, besides the results of performance evaluation of the Director’s concerned, the outcome on the assessment of his/ her independence (for Independent Director only), as well as fitness and propriety would be taken into consideration by the NRC during its deliberation, prior to appropriate recommendations being made to the Board for approval.

Upon the Board’s approval, the proposed appointments of Directors would then be submitted to BNM for approval as required under the Financial Services Act 2013 and BNM’s Guidelines on Corporate Governance.

In addition to the appointment of new Directors, the Terms of Reference of the NRC also requires that the NRC make recommendations to the Board on the re-appointments and re-elections for shareholders’ approval at the AGM of the Company of any Directors who are retiring by rotation or who have reached the age limit provisions as stipulated in the respective entity’s Articles of Association, having due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge, skills and experience required.

The Directors who are due for re-election/ re-appointment at the forthcoming AGM have been duly assessed by the NRC and recommended for re-election/ re-appointment based on their constructive contributions and valuable insights in fulfilling their roles and responsibilities.

In the event a Director’s position should suddenly become vacant by reason of death or other unanticipated occurrence, and if such vacancy results in the entity concerned breaching any of the regulatory requirements pertaining to the Board or Board Committees composition, the NRC shall convene a special meeting soonest possible to implement the process described herein.

During the year under review, no new Director was appointed but in terms of changes to the Board’s size, the number of Directors was reduced from eleven (11) to nine (9) with the demise of Raja Dato’ Seri Abdul Aziz Bin Raja Salim and resignation of Mr. Nilesh Navlakha.

In February 2016, the Board had approved the recommendation of the NRC that two (2) Directors namely Dato’ Richard Alexander John Curtis and Encik Ismail Harith Merican, both of whom are due to retire at the Twenty-Second (22nd) AGM, be eligible to stand for re-election. Both Directors had expressed their intention to seek re-election at the Twenty-Second (22nd) AGM.

The Board had also approved the NRC’s recommendation for the re-appointment of Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail and Encik Izlan Bin Izhab, who are over the age of seventy (70) years and scheduled to retire at the Twenty-Second (22nd) AGM, pursuant to Section 129(2) of the Companies Act, 1965.

The above approvals by the Board had taken into consideration the outcome of the performance evaluations of the Directors conducted in 2015.

2.3 Criteria for Board Assessment In line with the requirements of the MMLR, BNM’s

Guidelines on Corporate Governance and the recommendations of MCCG 2012, the performance and contribution of the Board, Board Committees and individual Directors is assessed annually in accordance with the Board Performance Evaluation Framework approved by the Board.



K & N KENANGA


2015

050

This performance evaluation aims to objectively improve the effectiveness, maximise strengths and address weaknesses of the Board, Board Committees, as well as individual Directors, if any. It enables the Board and Board Committees to assess how they are performing and identify how certain elements of their performance may be improved.

Individual Director’s performance evaluation is also aimed at assessing whether each Director continues to contribute effectively and is able to demonstrate commitment to the role, including commitment of time for Board and Board Committee meetings and any other duties.

The performance evaluation was conducted using the self-assessment method for Board and Board Committees and a combination of self and peer assessment methods for individual Directors, based on pre-determined criteria covering certain key areas in line with the Board Charter, as well as the Terms of Reference of the Board Committees.

The Board’s effectiveness was assessed in the areas of its structure, operations and interaction, roles and responsibilities, strategy and planning, financial overview, performance management, human capital management, risk management and internal control, shareholders communication and investor relations; and understanding of the Board Committees’ roles.

The effectiveness of the Board Committees, on the other hand, were assessed based on the fulfilment of the Board Committees’ functions as stipulated in their respective Terms of References, as well as composition, processes and procedures, interaction with Management; and roles and responsibilities.

For individual Directors, the assessment was based on pre-determined criteria relating to personal integrity and competency; contribution and performance; as well as calibre and personality.

The report on the outcome of the performance evaluation of the Board, Board Committees, as well as individual Directors for the financial year ended 31 December 2014 compiled by the Group Company Secretary was tabled to the NRC in May 2015 and July 2015 respectively, wherein the NRC had recommended the identified action plans for areas of improvement to the Board for approval.

The results obtained from the individual Directors evaluation also served as one of the criteria to be considered by the NRC and the Board when recommending and approving the re-appointment of Directors upon expiry of their term of office as stipulated by BNM, as well as the re-election of Directors under the retirement by rotation provisions in accordance with the respective Articles of Association of the companies within Kenanga Group.

The Board, upon recommendations by the NRC, would act on the results of the performance evaluation by recognising the strengths and addressing the weaknesses of the Board, Board Committees and individual Directors, if any, and, where appropriate, implement certain action plans to address any weaknesses identified.

Based on the feedback received from the Directors from the performance evaluation conducted in 2015, it was concluded that the Board and its Committees as a whole, as well as the individual Directors, had operated effectively and possessed all the necessary skills, experience and qualities required of them.

2.4 Formal and Transparent Remuneration Procedures

The Company aims to set remuneration levels which are sufficient to attract and retain the Directors needed to operate the Company successfully, taking into consideration all relevant factors including the function, workload and responsibilities involved, but without excessively over-paying to achieve its goal. The level of remuneration of the GMD and other key Senior Management personnel is determined by the NRC after giving due consideration to compensation levels of comparable positions amongst other similar companies in Malaysia.

The NRC carries out the annual review of the overall remuneration policy for Directors, the GMD and key Senior Management personnel whereupon recommendations are submitted to the Board for approval.

The NRC also reviews annually the performance of the GMD and his direct reports including the CEOs of the subsidiaries of the Company and submits recommendations to the Board for approval accordingly.




051

The Directors are paid an annual fee and meeting attendance allowance of RM1,000.00 for each Board or Board Committee meeting that they attend. The Directors’ fee is approved by the shareholders at the AGM.

A summary of the total remuneration of the Directors, distinguishing between Executive and Non-Executive Directors, in aggregate with categorisation into appropriate components for the financial year ended 31 December 2015 is tabulated below.

Fees# SalariesOther

Emoluments BonusBenefits-

in-Kind TotalRM RM RM RM RM RM

Executive Director

Datuk Chay Wai Leong - 1,512,000.00 317,000.00 756,000.00 93,000.00 2,678,000.00

TOTAL - 1,512,000.00 317,000.00 756,000.00 93,000.00 2,678,000.00

Non-Executive Directors


220,000.00 - 8,000.00 - 96,728.39 324,728.39

Datuk Syed Ahmad Alwee Alsree

225,000.00 - 14,000.00 - 30,731.72 269,731.72

Dato’ Richard Alexander John Curtis

130,000.00 - 16,000.00 - - 146,000.00

Datuk Kevin How Kow 169,205.48 - 19,000.00 - - 188,205.48

Luigi Fortunato Ghirardello 127,616.44 - 15,000.00 - - 142,616.44

Izlan Bin Izhab 169,205.48 - 21,000.00 - - 190,205.48

Ismail Harith Merican 100,000.00 - 14,000.00 - - 114,000.00

Luk Wai Hong, William 124,904.11 - 11,000.00 - - 135,904.11

Raja Dato’ Sri Abdul Aziz Bin Raja Salim

(Passed away on 4 March 2015)

26,054.79 - 3,000.00 - - 29,054.79

Nilesh Navlakha (Resigned with effect from

28 May 2015)

- - - - - -

TOTAL 1,291,986.30 - 121,000.00 - 127,460.11 1,540,446.41

GRAND TOTAL 1,291,986.30 1,512,000.00 438,000.00 756,000.00 220,460.11 4,218,446.41

# Subject to shareholders’ approval at the forthcoming Annual General Meeting



K & N KENANGA


2015

052

Executive DirectorNon-Executive

Directors Total

Below RM50,000 - 1 1

RM50,001 – RM100,000 - - -

RM100,001 – RM150,000 - 4 4

RM150,001 – RM200,000 - 2 2

RM200,001 – RM250,000 - - -

RM250,001 – RM300,000 - 1 1

RM300,001 – RM350,000 - 1 1

RM2,550,001 – RM2,600,000 - - -

RM2,650,001 – RM2,700,000 1 - 1

3. REINFORCE INDEPENDENT

3.1 Annual Assessment of Independent Director

In addition to the annual performance evaluation of the Board, Board Committee and individual Director, the Board Performance Evaluation Framework also includes the requirement for annual assessments on the independence of Independent Directors, as well as Director’s fitness and propriety, as required under the relevant regulatory requirements.

The results of these assessments would then be considered during the NRC and the Board’s deliberation on the proposed re-appointments of Directors upon expiry of their terms as stipulated by BNM or for purposes of re-election at the AGM under the retirement by rotation clause of the Company’s Articles of Association.

Based on the assessment conducted in 2015, all of the Independent Non-Executive Directors of the Company comply with the criteria of Independent Directors set out in the MMLR and BNM’s Guidelines on Corporate Governance.

3.2 Tenure of Independent Director

As stipulated in the Board Charter, the tenure of an Independent Director shall not exceed a cumulative term of nine (9) years.

3.3 Separation of Role of Chairman and Chief Executive Officer

The Company aims to ensure balance of power and authority between the Chairman and the GMD with a clear division of responsibility between the running of the Board and the Company’s business respectively. The positions of the Chairman and the GMD are separated and clearly defined in the Board Charter. This clear division of responsibilities ensures a balance of power and authority, such that no one (1) individual is entrusted with unfettered power of decision-making.

Role of Chairman

The Chairman of the Board is a Non-Independent Non-Executive Director of the Company and does not have an executive position or responsibility in the Company or its related corporations.




053

The Chairman is responsible for leading the Board in setting the values and standards of the Company, as well as maintaining a relationship of trust with and between Executive and Non-Executive Directors. In addition, the Chairman also ensures the provision of accurate, timely and clear information to the Directors to enable effective and informed decision making.

The Chairman, in consultation with the GMD and the Company Secretary, sets the agenda for Board meetings and ensures that all relevant issues are on the agenda.

The Chairman is responsible for managing the business of the Board to ensure that all Directors are appropriately briefed on issues arising at Board meetings; sufficient time is allowed for discussion of complex or contentious issues and, where appropriate, arranging for informal meetings beforehand to enable thorough preparation for Board discussion; and the issues discussed are mainly forward looking and concentrates on adoption of strategies.

The Chairman ensures that every Board resolution is put to vote to ensure the will of the majority prevails and that the Management look beyond their executive functions and accept their full share of responsibility on governance. The Chairman may be assisted in her role by the Deputy Chairman as deemed appropriate.

Even though Recommendation 3.5 of the MCCG 2012 for the Board to comprise a majority of Independent Directors where the Chairman is not an Independent Director has not been fully adopted by Kenanga, the Board currently comprises 44.44% Independent Directors. In that regard, the Board, via the NRC has initiated the process of sourcing for additional Independent Directors to enable it to fully embrace the aforementioned recommendation.

Role of GMD

The GMD has been delegated certain key authority which includes developing the strategic direction of the Company and ensuring that the Company’s strategies and corporate policies approved by the Board are effectively implemented.

The GMD is the conduit between the Board and the Management in ensuring the success of the Company’s governance and management functions and has the executive responsibility for the day-to-day operation of the Company’s business.

4. FOSTER COMMITMENT

4.1 Time Commitment

The meetings of the Board and Board Committees for the ensuing financial year are scheduled in advance before the end of the current financial year so that the Directors are able to plan ahead and accommodate the dates into their respective schedules so as to ensure the Directors’ time commitment to the Company.

During the financial year under review, eight (8) Board meetings were held and all Directors complied with the requirement of at least 50% attendance as prescribed in the MMLR.

The Directors’ commitment to carrying out their duties and responsibilities is affirmed by their attendance at the Board and Board Committee meetings held during the financial year ended 31 December 2015, as reflected overleaf.



K & N KENANGA


2015

054

BOARD 28 J

anua

ry 2

015

4 M

arch

201

5

6 M

ay 2

015

30 J

une

2015

29 J

uly

2015

3 S

epte

mbe

r 20

15

29 O

ctob

er 2

015

3 D

ecem

ber

2015

Number of Meetings Attended %

Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail ü ü ü ü ü û ü ü 7 out of 8 88

Datuk Syed Ahmad Alwee Alsree ü ü ü ü ü û ü ü 7 out of 8 88

Datuk Chay Wai Leong ü ü ü ü ü ü ü ü 8 out of 8 100

Datuk Kevin How Kow ü ü ü ü ü ü ü û 7 out of 8 88

Luigi Fortunato Ghirardello ü ü ü ü ü ü ü ü 8 out of 8 100

Dato’ Richard Alexander John Curtis ü ü ü ü ü ü ü ü 8 out of 8 100

Izlan Bin Izhab ü ü ü ü ü ü ü ü 8 out of 8 100

Ismail Harith Merican ü ü ü ü û ü ü ü 7 out of 8 88

Luk Wai Hong, William ü ü ü ü ü û ü ü 7 out of 8 88

Raja Dato’ Seri Abdul Aziz Bin Raja Salim(Passed away on 4 March 2015)

ü - - - - - - - - -

Nilesh Navlakha(Resigned with effect from 28 May 2015)

ü û ü - - - - - - -

NRC 28 J

anua

ry 2

015

4 M

arch

201

5

6 M

ay 2

015

29 J

uly

2015

3 S

epte

mbe

r 20

15

21 O

ctob

er 2

015

29 O

ctob

er 2

015


Izlan Bin Izhab ü ü ü ü ü ü ü 7 out of 7 100

Datuk Syed Ahmad Alwee Alsree ü ü ü ü û ü ü 6 out of 7 86

Datuk Kevin How Kow ü ü ü ü ü ü û 6 out of 7 86

Dato’ Richard Alexander John Curtis ü ü ü ü ü ü ü 7 out of 7 100

Luigi Fortunato Ghirardello(Appointed on 30 January 2015)

- ü ü ü ü ü ü 6 out of 6 100

Raja Dato’ Seri Abdul Aziz Bin Raja Salim (Passed away on 4 March 2015)

ü - - - - - - - -




055

AC 23 J

anua

ry 2

015

24 F

ebru

ary

2015

22 A

pril

2015

22 J

uly

2015

21 O

ctob

er 2

015


Datuk Kevin How Kow ü ü ü ü ü 5 out of 5 100

Izlan Bin Izhab ü ü ü ü ü 5 out of 5 100

Luk Wai Hong, William(Appointed on 4 March 2015)

- - ü ü ü 3 out of 3 100


ü - - - - - -

BRC 22 J

anua

ry 2

015

3 A

pril

2015

29 A

pril

2015

23 J

uly

2015

25 A

ugus

t 201

5

30 S

epte

mbe

r 201

5

21 O

ctob

er 2

015

25 N

ovem

ber 2

015


Luigi Fortunato Ghirardello ü ü ü ü ü ü ü ü 8 out of 8 100

Ismail Harith Merican ü ü ü x ü ü ü ü 7 out of 8 88

Luk Wai Hong, William ü ü ü ü ü ü ü ü 8 out of 8 100

Raja Dato’ Seri Abdul Aziz Bin Raja Salim (Passed away on 4 March 2015)

û - - - - - - - - -

In order to ensure a Director’s commitment to the Company, the Board Charter stipulates that Directors should devote sufficient time to carry out their responsibilities.

Directors should notify the Chairman before accepting any new directorship in a public company incorporated in Malaysia and all its subsidiaries incorporated in Malaysia or otherwise. The notification shall include an indication of time that will be spent on the new appointment.

In relation thereof, the directorships held by a Director in listed companies at any one time has been limited to five (5).



K & N KENANGA


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056

4.2 Directors’ Education and Development

a. Induction Programme for Newly Appointed Director

Kenanga has developed an induction programme for its newly appointed Directors, to familiarise them with the industry and Kenanga’s business and operations, within three (3) months of their appointments.

This induction programme, which are facilitated by Group Company Secretary’s Office, will involve briefings and discussions amongst the Senior Management with the newly appointed Directors, on the Company’s vision and mission, its philosophy and nature of business, current issues, the corporate strategy of Kenanga Group, responsibilities and duties of the Board as a whole, an overview of the risks of the businesses, risk management strategy of Kenanga, legal requirements and financial overview of Kenanga, as well as the expectations of Kenanga with regard to contributions from the Directors towards the Company’s achievement of its goals.

Independent Directors appointed to the Boards of subsidiaries within the Group shall also be provided a similar induction programme tailored to reflect the scope of their appointments at the respective entities.

b. Continuous Education and Development

The Company, via the Group Company Secretary’s Office facilitates the registration and attendance of Directors at appropriate external and in-house training programmes to ensure the Directors are kept abreast with new developments pertaining to the laws and regulations and changing commercial risks, which may affect the Board and/or the Company, as well as to ensure that they are fully equipped with the necessary knowledge to assist them in fulfilling their responsibilities as Directors of the Company.

In addition to the Mandatory Accredited Programme as required by Bursa Securities, the Financial Institutions Directors’ Education (FIDE) Core Programme as required by BNM, as well as the Capital Market Director Programme as required by the SC for newly appointed Directors, Board members are also encouraged to attend training programmes, conducted by highly competent professional, which are relevant to the Company’s operations and business.

In order to facilitate this process, the Annual Directors’ Training Calendar encompassing external training programmes available in the market and/or recommended by the Board members and/or organised in-house, is developed and tabled at the NRC and the Board for approval in the 1st quarter of each year to create awareness amongst the Directors of training programmes available for the year. Thereafter, the NRC and the Board will be updated on the status of Directors’ participation in these training programmes on a quarterly basis.

In developing the Annual Directors’ Training Calendar, feedback received from Directors during the Board evaluation process in terms of specific training needs required to increase the Board’s effectiveness, was also taken into consideration.

During the financial year 2015, all Directors attended various training programmes covering areas relevant to their duties and responsibilities which included, amongst others, corporate governance, leadership, conflict management, risk management, compliance, regulatory developments as tabulated overleaf.




057

Title of Training Programme Attendee(s)

Corporate Governance (CG)

Governance, Director’s Duties and Regulatory Updates Seminar 2015

Izlan Bin Izhab

FIDE – Core Programme Module B Luk Wai Hong, William

Building a World-Class Stock Exchange Datuk Chay Wai Leong

FIDE: Nominating Committee Programme Part 2 – Effective Board Evaluations

Izlan Bin Izhab and Luigi Fortunato Ghirardello

CG Breakfast Series with Directors: Future of Auditor’s Reporting – The Game Changer for Boardroom

Izlan Bin Izhab

Resolving Conflict in the Boardroom Dato’ Richard Alexander John Curtis

Bursa Malaysia: CG Breakfast Series with Directors: Board and Recognition

Datuk Syed Ahmad Alwee Alsree

Information Technology

International Institute of Management Development Business Forum KL: Digital Transformation Roadmap for Business


Digital Disruption Growing in the Digital Age BCG Asia Conference


Capital Markets

2015 Invest Malaysia Kuala Lumpur Datuk Chay Wai Leong

Capital Market Director ProgrammeModule 1: Directors as Gatekeepers of Market

Participants

Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail, Datuk Chay Wai Leong, Datuk Kevin How Kow, Luigi Fortunato Ghirardello, Dato’ Richard Alexander John Curtis and Ismail Harith Merican

Module 2A: Business Challenges and Regulatory Expectations – What Directors Need to Know (Equities and Futures Broking)

Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail, Datuk Chay Wai Leong, Datuk Kevin How Kow, Luigi Fortunato Ghirardello, Dato’ Richard Alexander John Curtis, Izlan Bin Izhab, Ismail Harith Merican and Luk Wai Hong, William

Module 2B: Business Challenges and Regulatory Expectations – What Directors Need to Know (Fund Management)


Module 3: Risk Oversight and Compliance – Action Plan for Board of Directors

Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail, Datuk Chay Wai Leong, Datuk Kevin How Kow, Luigi Fortunato Ghirardello, Dato’ Richard Alexander John Curtis, Izlan Bin Izhab and Ismail Harith Merican

Module 4: Current and Emerging Regulatory Issues in the Capital Market

Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail, Datuk Kevin How Kow, Luigi Fortunato Ghirardello, Dato’ Richard Alexander John Curtis, Izlan Bin Izhab and Ismail Harith Merican



K & N KENANGA


2015

058

Title of Training Programme Attendee(s)

Capital Markets (cont’d.)

The Global Sustainability and Impact Investing Forum Datuk Chay Wai Leong

World Capital Markets Symposium 2015 Datuk Chay Wai Leong

Corporate Directors Advanced Programme – “Mergers & Acquisitions”

Izlan Bin Izhab

Leadership

Board Chairman Series Part 2: Leadership Excellence from the Chair

Datuk Kevin How Kow

Towards Board Excellence Datuk Kevin How Kow

Leadership Excellence: Lifelong for Leaders Datuk Chay Wai Leong

The Interplay Between CG, NFI and Investment Decision – What Boards of Listed Companies Need to Know

Izlan Bin Izhab

In-House Programme

In-House Programme: Understanding Equity Derivatives Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail, Datuk Syed Ahmad Alwee Alsree, Datuk Kevin How Kow, Luigi Fortunato Ghirardello, Dato’ Richard Alexander John Curtis and Ismail Harith Merican

5. UPHOLDING OF INTEGRITY IN FINANCIAL REPORTING

5.1 Audit Committee to Ensure Compliance with Financial Reporting Standards

At the Board meetings, the Board reviews the Management reports on the business performance of Kenanga, as well as its major subsidiaries, and reviews, inter-alia, the results compared to the preceding month and year-to-date.

The Board deliberates and in the process, assesses the viability of business propositions and corporate proposals, and the principal risks that may have significant impact on Kenanga’s business or on its financial position, as well as the related mitigating factors.

The Board aims to provide a clear, balanced and comprehensive assessment of the Group’s financial performance and prospects through the Audited Financial Statements and quarterly financial reports, as well as through material disclosure made in accordance with the MMLR.

The AC assists the Board in overseeing the integrity of the Group’s financial reporting and part of this role involves the operation of the financial reporting processes. The processes are aimed at providing the assurance that the financial statements and related notes are completed in accordance with applicable legal requirements and accounting standards and give a true and fair view of the Group’s financial positions.

For the year under review, a session between the AC and the External Auditors in the absence of the Management was held as part of the medium for greater exchange of views and opinions between both parties in relation to the financial reporting.

Details on the AC’s composition, Terms of Reference and summary of its activities during the year under review are outlined in the Audit Committee Report appearing on pages 65 to 70 of this Annual Report, whilst the Statement of Responsibility by Directors in respect of the preparation of the annual audited financial statements of the Company are provided on page 59 of this Annual Report.




059

Internal Control

It is important to emphasise that the ultimate responsibility for ensuring a sound internal control system and reviewing the effectiveness of the system lies with the Board. The Company’s inherent system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve the Company’s corporate objectives, as well as to safeguard the shareholders’ investments and the Company’s assets.

Details of the Company’s internal control system and framework are set out in the Statement on Risk Management and Internal Control appearing on pages 71 to 73 of this Annual Report.

5.2 Suitability and Independence of External Auditors

It is a policy of the AC to meet with the External Auditors of Kenanga, at least twice a year to discuss their audit plan, audit findings and the Company’s financial statements. In addition, the AC also holds separate meetings with the External Auditors without the presence of Management to ensure full disclosure and transparent report on relevant issues affecting the Company.

The External Auditors are also invited to attend the AGMs of the Company and are available to answer shareholders’ queries on the conduct of the statutory audit and the preparation and contents of their audit report.

In relation to the re-appointment of Messrs. Ernst & Young as Kenanga’s auditors for the financial year ended 31 December 2015, the Board had at its meeting on 28 January 2015, concurred with the AC’s recommendation for Messrs. Ernst & Young to be re-appointed as the Company’s External Auditors after having satisfied with the outcome of the assessment conducted on Messrs. Ernst & Young’s performance and independence, in accordance with Section 67(1) of the Financial Services Act 2013, as well as BNM’s Policy on External Auditor issued on 29 August 2014.

The current Engagement Partner of Messrs. Ernst & Young, Mr. Chan Hooi Lam has been with Kenanga Group for the past two (2) years, upon retirement of the previous Engagement Partner.

The AC’s roles in relation to the internal and external audit functions are outlined in the Audit Committee Report appearing on pages 65 to 70 of this Annual Report.

6. RECOGNITION AND MANAGEMENT OF RISK

The main features of Kenanga Group’s risk management framework, as well as internal control system are provided in detail in the Statement of Risk Management and Internal Control appearing on pages 71 to 73 of this Annual Report.

D I R E C T O R S ’ R E S P O N S I B I L I T Y S T A T E M E N T I N R E S P E C T O F T H E A U D I T E D F I N A N C I A L

S T A T E M E N T S

(Pursuant to Paragraph 15.26(a) of the MMLR)

The Board is fully accountable for ensuring the Audited Financial Statements are prepared in accordance with the Companies Act, 1965 and the applicable approved accounting standards set out by the Malaysian Accounting Standards Board so as to present a true and fair view of the state of affairs of the Group and of the profit and loss and cash flow as at end of the accounting period.

In preparing the Audited Financial Statements, the Directors are satisfied that the applicable approved accounting standards in Malaysia have been complied with and reasonable and prudent judgment and estimates have been made. The Audited Financial Statements are also prepared on a going concern basis, as the Board has a reasonable expectation, after having made enquiries that the Group has adequate resources, to continue its operational existence for the foreseeable future.

A D D I T I O N A L C O M P L I A N C E I N F O R M A T I O N A S A T 3 1 D E C E M B E R 2 0 1 5

Options, Warrants or Convertible Securities

The Company did not issue any options, warrants or convertible securities during the financial year.



K & N KENANGA


2015

060

Share Buy-Back

Details of the shares of the Company purchased during the financial year ended 31 December 2015 and held as treasury shares are as follows:

Month in 2015

No. of Shares Bought-Back

Par Value Per Share (RM)

Purchase Price Per Share (RM)

Total Consideration

(Inclusive of Transaction Costs)(RM)Lowest Highest Average

January - - - - - -

February - - - - - -

March - - - - - -

April - - - - - -

May 6,856,400 1.00 0.735 0.760 0.749 5,154,860.53

June 595,100 1.00 0.685 0.710 0.700 419,311.07

July - - - - - -

August 739,000 1.00 0.565 0.590 0.579 430,158.83

September 851,000 1.00 0.570 0.590 0.584 500,355.18

October - - - - - -

November 171,000 1.00 0.585 0.590 0.586 100,717.58

December - - - - - -

Total 9,212,500 6,605,403.19

There was no resale or cancellation of treasury shares during the financial year.

Utilisation of Proceeds of Kenanga’s RM200 Million Commercial Papers/ Medium-Term Notes Programme

On 13 August 2014, Kenanga established a RM200 million Commercial Papers/ Medium-Term Notes Programme (CP/MTN Programme) in nominal value of up to seven (7) years tenure. Pursuant to this, Kenanga may from time to time issue debt under the CP/MTN Programme subject to availability of funds from the market.

As at 31 December 2015, the outstanding MTN under the CP/MTN Programme are as follows:

Issue Date Series RM’000 Rate Tenure

5 December 2014 002 50,000 4.90% p.a. 18 months

8 May 2015 003 5,000 4.65% p.a. 367 days

22 May 2015 004 5,000 4.65% p.a. 367 days

29 June 2015 005 5,000 4.65% p.a. 366 days

24 July 2015 006 5,000 4.65% p.a. 367 days

26 August 2015 007 5,000 4.65% p.a. 366 days

17 September 2015 008 35,000 4.60% p.a. 368 days




061

American Depository Receipt/ Global Depository Receipt

The Company did not sponsor any American Depository Receipt or Global Depository Receipt programmes during the financial year.

Imposition of Sanctions and/or Penalties

During the financial year ended 31 December 2015, a wholly-owned subsidiary of Kenanga, KIBB, was fined by the respective regulators as detailed below.

1. A fine of RM5,000.00 by Bursa Malaysia for breach of Rule 11.02(3)(a) of the Rules of Bursa Securities; and

2. A fine of RM200,000.00 by the SC for contravening Section 61(4) of the Capital Markets and Services Act 2007 read together with Paragraph 7.02(12)(a) of the Licensing Handbook and Paragraph 8.2.1 read together with Paragraphs 11.2, 11.3 and 11.4 of the SC’s Guidelines on Prevention of Money Laundering and Terrorism Financing for Capital Market Intermediaries.

Non-Audit Fees

The Group’s non-audit fees payable to the External Auditors, Messrs. Ernst & Young and its affiliate companies, for the financial year ended 31 December 2015 amounted to RM228,000.00.

Variation in Results

There were no profit estimates, forecast or projection issued by the Company and its subsidiary companies during the financial year.

Profit Guarantee

There were no profit guarantees given by the Company and its subsidiary companies during the financial year.

Material Contracts

There were no material contracts entered into by the Company or its subsidiary companies involving Directors’ and major shareholders’ interests, which subsisted at the end of the financial year ended 31 December 2015.

Related Party Transactions

All related party transactions are reviewed by Group Internal Audit on a quarterly basis and a report is submitted to the AC for their review.

Details of these transactions are set out under Note 36 of the Financial Statements section appearing on page 151 of this Annual Report.

Recurrent Related Party Transactions of a Revenue or Trading Nature

There were no recurrent related party transactions entered into by the Company and its subsidiary companies during the financial year, except as disclosed on page 151 under the Financial Statements section of this Annual Report.

This Statement on Corporate Governance is made in accordance with a resolution of the Board of Directors dated 25 February 2016.

TENGKU DATO’ PADUKA NOOR ZAKIAH BINTI TENGKU ISMAILChairman of the Board



K & N KENANGA


2015

062 STATEMENT ON COMPLIANCE AND GOVERNANCE

“We are committed to the preservation of our reputation and integrity

through compliance with applicable laws,

regulations and ethical standards in each of the

markets we operate.We believe regulatory compliance and good governance provides a solid basis for our

business in promoting transparent and ethical

business conduct at all levels.”

Maheswari KanniahGroup Chief Regulatory Officer

K & N Kenanga Holdings Berhad and its Group of Companies (Kenanga Group or the Group) strives to uphold the highest standards of excellence in everything we do. We are committed to the preservation of our reputation and integrity through compliance with applicable laws, regulations and ethical standards in each of the markets we operate. In our view, responsible corporate governance does not only mean adherence to laws, regulations and standards but also requires a stringent compliance system, making compliance an essential ingredient of good corporate governance.

We believe regulatory compliance and good governance provides a solid basis for our business in promoting transparent and ethical business conduct at all levels. We understand that while governance structures and processes are important, it is the question of how well they are implemented and function within the Group that must be carefully considered.

To this end, we have defined rules, guidelines, policies and procedures for our Board of Directors (the Board) and employees across the entire spectrum of our business activities. Through our compliance with the law and industry rules and regulations, we ensure that Kenanga Group and its stakeholders are protected as comprehensively as possible. We continually strive to embrace a culture where the spirit and values of all our stakeholders are attached to the practice of good governance.

O U R G R O U P C O M P L I A N C E C H A R T E R

Kenanga Group has adopted a Group Compliance Charter (Compliance Charter) that sets out the fundamental principles for managing compliance in the Group and for ensuring that the activities of the Group and its employees are conducted in accordance with all applicable laws and regulations, relevant internal rules, policies and procedures, codes of conduct and standards of good practice.

In terms of Compliance Governance, the Compliance Charter spells out the governance structure across the entire Kenanga Group, as well as governance within the compliance function, which includes establishing clear ownership of compliance risks and the roles and responsibilities of the Board, Management, employees and compliance officers for managing compliance risks.

The Compliance Charter further stipulates the relationship between the compliance function and that of other internal control functions within Kenanga Group, namely Risk Management, Internal Audit and Legal. These functions collectively integrate sound compliance risk management approaches and practices as part of the overall risk management strategy of the Group.

O U R C O M P L I A N C E F R A M E W O R K

Using a Compliance Framework outlined in the Compliance Charter as a basis and through sound planning and intervention, we continuously raise the level of awareness, quality and effectiveness of the compliance function and promote a culture of compliance and self-regulation across the Group.

Our Compliance Framework specifies the functions of the Regulatory/Compliance team, as well as sets out our expectations of the standards of compliance required of each and everyone in Kenanga Group. This is implemented through effective and timely regulatory and compliance advice aimed at ensuring legal and regulatory compliance



063STATEMENT ON COMPLIANCE AND GOVERNANCE

while achieving optimum business outcomes for the Group. Compliance requirements and standards are further facilitated through the implementation of frameworks and tools including a Corporate Regulatory Compliance Calendar, Compliance Matrix and Quarterly Departmental Self-Assessment, amongst others.

We also proactively participate and actively engage with our industry stakeholders on a wide variety of issues. This includes providing feedback on consultation papers issued by regulators and industry associations. We also contribute articles related to compliance and regulatory issues for publication in an industry newsletter, Compliance Today issued by the Malaysian Investment Banking Association. We are members of various industry associations and committees. This participation and contribution allows us to bring to the fore our challenges and to share ideas in raising the standards of regulatory compliance in the industry.

During the financial year 2015, the Group Regulatory & Corporate Services Division (Group Regulatory) achieved several milestones in meeting regulatory requirements and in implementing compliance programmes.

Our Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) Programme

Our AML/CFT programme provides strong support for efforts to combat money laundering, terrorism financing and other criminal acts. The Board and Senior Management continue to demonstrate their commitment towards effective compliance and AML/CFT programmes. We scrutinise clients and current transactions using meticulous procedures and a monitoring system through this compliance programme.

In 2015, we revised our Group’s AML/CFT Policy (last amended in April 2014) to further enhance our framework for detection, monitoring and reporting of suspicious money laundering activities and terrorism financing in line with industry best practices. We have also embarked on an initiative to procure a dedicated AML system to further boost our monitoring activities.

Kenanga Group’s Whistleblowing Framework

In line with Kenanga Group’s commitment to conduct our business and operations premised on the concepts of transparency, integrity and accountability, and in compliance with applicable laws and regulations, the Whistleblowing Framework (Framework) was established in 2015.

This Framework sets out the channels and procedures for the reporting of any concerns about behaviour, conduct, practice, deeds and/or omissions that might be either unlawful or irregular

(collectively called “malpractice”) within Kenanga Group by any employee thereof. Reports may flow in via mail, email and/or the whistleblowing link in Kenanga Group’s corporate website. All reports made in good faith shall be accorded certain safeguards under this Framework.

As an internal reporting system ensuring adherence to the Group Code of Ethics and Conduct, as well as serving as an early warning system, the Whistleblowing Framework works towards eradicating improper conduct that may cause major losses or adverse reputational impact to Kenanga Group.

Kenanga Group’s Designated Officer under this Framework, namely the Group Chief Regulatory Officer, had, prior to the implementation of this Framework, conducted briefing sessions to familiarise the relevant stakeholders of their roles and responsibilities towards ensuring the adoption of high standards of professionalism, honesty, integrity and ethics.

Corporate Alliance Partnership with the Association of Certified Fraud Examiners (ACFE)

Kenanga Group’s participation since April 2015 in the ACFE reinforces our commitment to our fight against fraud via increasing anti-fraud knowledge and certification amongst our employees, driving higher levels of corporate governance and more robust internal controls.

ACFE, a twenty-six (26) year-old US organisation having nearly seventy-five thousand (75,000) members in over one hundred and fifty (150) countries, is the world’s largest anti-fraud organisation. The corporate alliance programme by ACFE supports the implementation of anti-fraud best practices in organisations by providing access to exclusive training opportunities and resources in fraud detection and deterrence. Over and above the additional platform to access tools, training programmes and anti-fraud best practices, employees will also have access to a network of like-minded professionals from different organisations and industries in the world. This membership will also serve as an international platform for Kenanga Group to bring to the table its perspective and experience in the Malaysian financial services space.

As the first (1st) Southeast Asian company to partner with ACFE, Kenanga Group is signalling a proactive approach to the prevention, detection and deterrence of fraud. Furthermore, we are leading by example and setting a high standard in training our staff to identify the red flags of fraud towards staying ahead of financial crimes. Awareness, coupled with the right culture, is definitely the mould for Kenanga Group to deter improper conduct and mitigate the risks of fraud.


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Personal Data Protection Act 2010 (PDPA)

Client privacy has been, and will always remain, our top priority, especially with the enforcement of the PDPA on 15 November 2013. Kenanga Group will continue to enhance its internal processes, policies and systems to comply with the new standards or orders issued or to be issued by the Personal Data Protection Commissioner from time to time.

Amongst the activities undertaken in 2015 were:

• Implementing the listing of third party disclosures;

• Ongoing enhancement and development of the internal framework and processes in line with the new requirements of the PDPA Standards enforced as at 23 December 2015; and

• Reviewing the internal framework and processes to cater to the Code of Conduct for the Banking Industry which is targeted to be enforced in the first quarter of 2016 (1Q16).

Foreign Account Tax Compliance Act 2010 (FATCA)

With the enforcement of the FATCA, Kenanga Group has enhanced and modified its internal systems, control frameworks and processes for timely compliance with the legislative requirements.

Amongst the activities undertaken in 2015 were:

• Conducting pre-existing clients’ searches/due diligence for the purpose of disclosure/reporting; and

• Aligning the system formats for the purpose of reporting to the US Internal Revenue Service.

Extensive Training to Reinforce Our Standards

In order to promote responsible behaviour on the part of our employees, in 2015, we conducted training on AML/CFT, the PDPA and the Competition Act 2010, in addition to mandatory compliance training on the Group Whistleblowing Policy, as well as the two (2) regulatory compliance e-tests on AML/CFT and Ethics and Governance. Failure to complete mandatory training programmes carries clear consequences, for example with regards to meeting Key Performance Indicators as part of the Performance Appraisal process and compensation.

Group Regulatory’s personnel play an important role in providing compliance training to the relevant business, operational and support units of Kenanga Group. In 2015 we carried out eight (8) one-on-one engagements with the Heads of Branches and remisiers. The purpose of these engagements was to provide awareness and insights into areas that require greater scrutiny from the compliance perspective. On-boarding programmes for new staff also included a segment on key compliance requirements to be complied with by staff.

Internal Regulatory Support

To ensure Group-wide internal integration of legislative and regulatory policy and decisions, Group Regulatory provides advice and support on all relevant regulatory and compliance requirements and best practices. In this regard, all legislative and regulatory requirements are reviewed and communicated to the relevant parties within Kenanga Group. In 2015, Group Regulatory reviewed, communicated and advised on a total of one hundred and forty-seven (147) pieces of regulatory instruments, including acts, rules, regulations, policies and guidelines. Additionally, Group Regulatory keeps the Group well-informed through Weekly Regulatory Updates and has in place a database of all legislative and regulatory decisions.

Group Regulatory is also one of the three (3) Independent Reviewers of Kenanga Group’s Policies and Procedures (P & Ps) to ensure that they are in compliance with the laws and regulations and provide for regulatory safeguards and a focused compliance framework for the Group. In 2015, Group Regulatory reviewed a total of seventy-two (72) internal P & Ps.

I N C O N C L U S I O N

Through our commitment to excellence, we expect to achieve the highest level of regulatory compliance for all our stakeholders. We take a comprehensive approach to regulatory compliance and good governance in line with industry best practice as we recognise that our purpose, values and ethical principles will power our success and that good governance makes it possible for us to adapt our business to new opportunities, while keeping these fundamental pillars strong and steady. With established Group-wide policies to promote a compliant workplace, with practices such as non-retaliation and self-reporting, we are committed to maintaining this culture.

STATEMENT ON COMPLIANCE AND GOVERNANCE



065AUDIT COMMITTEE REPORT

C O M P O S I T I O N

The Audit Committee (AC) presently comprises three (3) members of the Board, all of whom are Independent Non-Executive Directors. This is in line with Paragraph 15.09(1)(b) of Bursa Malaysia Securities Berhad (Bursa Securities)’s Main Market Listing Requirements (MMLR) which requires all members of the AC to be Non-Executive Directors, with a majority of them being Independent Directors.

The current composition of the AC is as follows:

1. Datuk Kevin How Kow Chairman, Independent Non-Executive Director (Appointed as Chairman of the AC on 30 January 2015);

2. Izlan Bin Izhab Member, Independent Non-Executive Director; and

3. Luk Wai Hong, William Member, Independent Non-Executive Director (Appointed as Member of AC on 4 March 2015).

The Chairmanship of the AC was changed in January 2015 with the appointment of Datuk Kevin How Kow arising from the re-designation of the then Chairman of the AC, Raja Dato’ Seri Abdul Aziz Bin Raja Salim from an Independent Non-Executive Director to a Non-Independent Non-Executive Director.

Subsequent to that, in March 2015, the composition of the AC was revised further with the appointment of Mr. Luk Wai Hong, William, an Independent Non-Executive Director, following the demise of Raja Dato’ Seri Abdul Aziz Bin Raja Salim on 4 March 2015.

The Chairman of the AC, Datuk Kevin How Kow, is a Fellow of the Institute of Chartered Accountants in England & Wales and the Institute of Singapore Chartered Accountants. He is also a member of the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants.

He was made a partner of Messrs. Ernst & Young, Malaysia in 1984 and served as the partner-in-charge of its offices in Sabah and Sarawak and later from 1996 onwards, as the partner-in-charge of the firm’s practice in Sabah and Labuan until his retirement on 31 December 2003.

The effectiveness of the AC as a whole, as well as its members individually is assessed annually in accordance with the Board Performance Evaluation Framework based on set criteria covering the areas of composition, processes and procedures, interaction with the Management, as well as roles and responsibilities. Based on the assessment conducted in

2015, the Board is satisfied with the performance of the AC and with the manner in which the AC has discharged its roles and responsibilities as stipulated in its Terms of Reference.

A C M E E T I N G S H E L D D U R I N G T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 5

During the financial year ended 31 December 2015, the AC had convened five (5) meetings. The meetings were appropriately structured where members were given the agenda and sufficient notification. The AC meetings were of adequate length to allow the AC to accomplish its agenda with sufficient time to discuss emerging issues.

The AC conducted its meeting in an open and constructive communication mode and encouraged focused discussion, questioning and expressions of differing opinions.

The Chief Internal Auditor (CIA) attended all meetings of the AC to present the respective audit reports. As and when necessary, the AC would request the attendance of relevant personnel at its meetings to brief the AC on specific issues arising from the Internal Audit reports.

The Group Chief Financial Officer (GCFO) on the other hand, attended the AC meetings to present the unaudited quarterly financial statements, as well as other financial reporting related matters for the AC’s deliberation and recommendation to the Board for approval, where appropriate.

In addition, separate private discussions were also held between the AC, the CIA and the External Auditors without the presence of Management. During the financial year under review, the AC met with the External Auditors without Management’s presence twice, i.e. on 22 January 2015 and 21 October 2015 after tabling of the Company’s annual audited financial statements for the financial year ended 31 December 2014 and the External Auditors’ 2015 Audit Plan respectively.

During these meetings, the AC sought the feedback from the External Auditors with regard to the support provided by Management in terms of providing timely and accurate information, as well as the adequacy of resources in the financial reporting functions. Based on the External Auditors’ feedback, Management was noted to have provided full cooperation to the External Auditors in the course of their audit assignments. The External Auditors had also indicated that Management had been very pro-active in approaching them for any issues arising during the year, which contributed to an effective audit planning by the External Auditors.

After each meeting, the Chairman of the AC reported the AC’s deliberations and recommendations to the Board.


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Minutes of each AC meeting were recorded and tabled for confirmation at the following AC meeting and subsequently presented to the Board for notation.

Details of AC members’ attendance at its meetings held during the financial year ended 31 December 2015 are as stated below.

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Datuk Kevin How Kow ü ü ü ü ü 5 out of 5 100%

Izlan Bin Izhab ü ü ü ü ü 5 out of 5 100%

Luk Wai Hong, William(Appointed on 4 March 2015)

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S U M M A R Y O F A C T I V I T I E S O F T H E A C D U R I N G T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 5

1. Financial Reporting

In discharging its role and responsibility pertaining to the Company’s financial reporting, the AC had at its meeting held on 23 January 2015, reviewed the quarterly financial statements for the quarter ended 31 December 2014, as well as the annual audited financial statements of the financial year ended 31 December 2014.

The subsequent quarterly financial statements for the quarters ended 31 March 2015, 30 June 2015, 30 September 2015 and 31 December 2015 were tabled and reviewed by the AC at its quarterly meetings held on 22 April 2015, 22 July 2015, 21 October 2015 and 20 January 2016 respectively, and recommended to the Board for approval.

In reviewing the annual audited financial statements, the AC discussed with the Management and the External Auditors, the accounting principles and standards that were applied and their judgment of the items that might affect the financial statements.

The AC also deliberated on audit issues raised by the External Auditors and the action plans required to address those issues.

2. External Audit

2.1 The report by the External Auditors on the statutory audit of the financial statements of the Company for the financial year ended 31 December 2014 was reviewed and deliberated by the AC at its meeting held on 23 January 2015.

During its deliberation, in addition to the relevant disclosures in the audited financial statements, the AC had also considered the recommendations made by the External Auditors towards enhancing internal controls and procedures.

2.2 The AC had also at the same meeting reviewed the list of services provided by the External Auditors during the financial year comprising audit and audit-related services; issuance of a written communication to the Management describing significant deficiencies and material weaknesses identified during the External Auditors’ audit; and issuance of a management letter including recommendations for improvements in controls and procedures.

In addition, the External Auditors’ services also included the annual review of the Statement on Risk Management and Internal Control, as well as other regulatory submission as required under the various regulatory requirements.

AUDIT COMMITTEE REPORT



067

2.3 Pursuant to section 67(1) of the Financial Services Act 2013 (FSA), an auditor appointed by a licensed person shall meet the qualification criteria set out in the Policy on External Auditor and shall continue to meet the criteria throughout the audit engagement.

In addition, Bank Negara Malaysia’s (BNM) Policy on External Auditor issued on 29 August 2014 also sets out the areas of assessment to be performed.

Being a Financial Holding Company under the FSA, the Company was required to undertake an annual assessment on areas focusing on performance and independence of External Auditors.

In relation to the audit of the Company’s financial statements for the financial year ended 31 December 2015, the External Auditors had given a written assurance to the AC that they were not aware of any relationships or matters that, in their professional judgement, might reasonably be thought to bear on their independence; and that they were independent in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants, throughout their audit engagement for 2015.

This written assurance by the External Auditors was contained in the External Auditors’ Report which was presented to the AC on 23 January 2016.

Based on the assessment conducted, the AC had concluded that the External Auditors had fulfilled all the qualification set out in BNM’s Policy on External Auditors in terms of its performance and independence and had therefore recommended to the Board that the External Auditors be re-appointed as the Company’s External Auditors for the financial year ended 31 December 2016.

2.4 At its meeting held on 21 October 2015, the AC reviewed and recommended to the Board for approval, the External Auditors’ 2015 Audit Plan outlining their scope of work and proposed fees covering their recurring audit assignments, as well as other regulatory-related services, for the financial year ended 31 December 2015.

2.5 On 20 January 2016, the GCFO briefed the AC that the Non-Audit Fees (inclusive of expenses and taxes) incurred and paid to the External Auditors for the financial year ended 31 December 2015 were RM281,986 or 52.0% of the audit fees for the financial year ended 31 December 2014.

3. Internal Audit

3.1 The AC at its meeting on 23 January 2015 had reviewed and approved the 2015 Audit Plan tabled by Group Internal Audit (GIA) after considering the adequacy of scope and comprehensiveness of the coverage of activities within Kenanga Group, as well as the adequacy of resources in the internal audit department.

3.2 In 2015, the AC had reviewed and deliberated on a total of thirty-two (32) Internal Audit reports issued by GIA, including the audit recommendations made by GIA and the Management’s responses to those recommendations. Where appropriate, the AC directed the Management to rectify and improve control and workflow procedures based on GIA’s recommendations and suggestions for improvement.

The AC, at all its quarterly meetings, also reviewed the implementation status of the corrective actions arising from the audit recommendations to ensure that the key risks and control lapses identified were addressed in a timely manner.

3.3 With a view of continuously enhancing the processes of the internal audit department, the AC had on 22 April 2015 and 21 October 2015 reviewed and approved the Revised Guidelines on Audit Report and Findings Rating System and the updated Internal Audit Manual, respectively.

3.4 In assessing the performance of the CIA in 2015, the AC had reviewed the CIA’s 2015 Balanced Scorecard, as well as 2015 Performance Appraisal prior to submission of the same to the Group Nomination & Remuneration Committee (NRC) for its further recommendation to the Board for approval.

4. Related Party Transactions

During its quarterly meetings, the AC also reviewed and recommended the related party transactions entered into by the Company and/or its group of companies. The AC also reviewed and deliberated on the draft Circular to Shareholders on the Related Party Transactions and Recurrent Related Party Transactions.



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5. Annual Reporting

On 24 February 2015, the AC reviewed and recommended the Audit Committee Report for 2014, Statement on Corporate Governance, as well as the Statement on Risk Management and Internal Control for the Board’s approval for the same to be disclosed in the 2014 Annual Report.

6. Policy on Non-Audit Services

The AC had also in October 2015 reviewed and recommended to the Board for approval, the revised Group Policy on Non-Audit Services for the External Auditors.

I N T E R N A L A U D I T F U N C T I O N

GIA’s vision is to be a well-regarded assurance and advisory function and a valued business partner to the Management to support the achievement of Kenanga Group’s business goals and objectives.

In discharging its responsibilities, GIA, which reports functionally to the AC and administratively to the Group Managing Director, provides independent and objective assurance to the Board and the Management that the policies, procedures and operations that the Management has put in place for risk management, control and governance are adequate, operating effectively and efficiently, and in compliance with prescribed laws and regulations.

During the year under review, GIA carried out internal audit reviews based on its 2015 Audit Plan as approved by the AC. This Audit Plan was developed using a risk-based methodology.

During the year, the audit reviews conducted by GIA included operational audits, IT and technical audits and compliance audits on regulatory requirements. In addition, GIA also conducted project reviews and/or provided consulting functions covering new business products/ services and system implementation to ensure the adequacy of controls put in place prior to implementation.

On ad-hoc basis, GIA also conducted special reviews at the request of the AC and/or Management. For the financial year ended 31 December 2015, GIA had conducted seventeen (17) such reviews and escalated the reports arising therefrom to the AC, as well as the relevant Boards of affected entities, for deliberation and action, wherever necessary.

All Internal Audit reports, detailing the audit findings, audit recommendations, as well as the Management’s responses to those recommendations were circulated to the Group Managing Director and Heads of the respective Divisions/ Departments within the Group. Follow-up reviews were performed on the

implementation status of the audit recommendations and reported to the AC accordingly.

The total costs incurred by GIA in discharging its functions and responsibilities in 2015 amounted to RM1.77 million compared to RM1.96 million incurred in 2014.

S U M M A R Y O F T H E T E R M S O F R E F E R E N C E O F T H E A C

The AC operates pursuant to a written Terms of Reference which is reviewed regularly to ensure its alignment with the latest regulatory requirements. The summary of the Terms of Reference of the AC are as provided below.

1. COMPOSITION

1.1 The AC shall comprise only Non-Executive Directors with at least three (3) members, the majority of whom should be Independent Directors;

1.2 The Chairman of the AC shall be an Independent Non-Executive Director;

1.3 The membership of the AC, including the position of Chairman shall be approved by the Board based on the recommendation made by the NRC;

1.4 At least one (1) member of the AC should have accounting expertise or experience in the field of finance;

1.5 No alternate Director shall be appointed as a member of the AC;

1.6 In the event of any vacancy resulting in the number of members being reduced to below three (3), the Board shall within three (3) months fill the vacancy; and

1.7 Any member of the AC shall abstain from participating in discussions and decisions on matters involving them.

2. TERM OF OFFICE

The term of office and performance of each of the AC members shall be reviewed by the Board at least once every three (3) years to determine whether the AC and its members have carried out their duties in accordance with their terms of reference.

3. SECRETARY

The Company Secretary shall act as the Secretary of the AC.




069

4. AUTHORITY

4.1 The AC shall have full and unrestricted access to the Company’s records, properties and officers in carrying out its duties and responsibilities.

4.2 The AC shall be granted the authority to investigate any activity of the Company and its subsidiaries within its Terms of Reference and all employees and external consultants involved shall be directed to cooperate as and when required by the AC.

4.3 The AC shall also be empowered to consult independent experts, where necessary, to assist in executing its duties and shall have direct communication channels with the External and Internal Auditors.

4.4 The internal audit function shall report directly to the AC.

5. MEETINGS

5.1 Quorum

a. The AC is to have a quorum of two (2) members and the majority of members present must be Independent Directors.

b. No business shall be transacted unless the quorum is fulfilled either in person or by video or telephone conferencing throughout the proceedings of the meeting.

5.2 Frequency of Meetings

a. The AC shall meet at least four (4) times a year. However, additional meetings may be called at any time at the Chairman’s discretion. Meetings with a quorum in attendance shall constitute a competent and fully empowered Committee, able to exercise all authority vested in and exercisable by the AC.

b. In addition, the Chairman may call a meeting of the AC if a request is made by any member of the AC, the Group Managing Director, or the Internal or External Auditors.

c. In the interim period between meetings, if the need arises, issues shall be resolved through circular resolution. A circular resolution in writing, stating the reason(s) to arrive at a recommendation or resolution, signed by at least two-thirds (2/3) of the AC members, shall be valid and effective as if it had been passed at a meeting duly convened and constituted.

5.3 Attendance at Meetings

a. Upon invitation by the AC, the CIA shall be in attendance at meetings of the AC.

b. The AC may invite the External Auditors, external consultants or advisers or any other Directors or members of the senior management and employees of the Group to be in attendance during meetings to assist in its deliberations.

c. The AC shall meet with the External Auditors without the presence of the Group Managing Director or Senior Management at least twice a year.

5.4 Minutes of Meetings

a. The minutes of each AC meeting shall be kept and distributed to all AC members and presented at the Board meeting for notation.

b. The minutes of the AC meetings shall be made available for inspection by any member of the AC or the Board, as well as the Internal Auditors.

6. ROLES AND RESPONSIBILITIES

6.1 The AC reviews the following and reports the same to the Board:

a. With the External Auditors, the audit plan;

b. With the External Auditors, the evaluation of the systems of internal controls, compliance programme, risk management processes and systems of the Group and audit findings;

c. With the External Auditors, the auditors’ report;

d. The letter of resignation from the External Auditors and/or whether there is reason to believe that the External Auditors are not suitable for re-appointment;

e. The assistance given by the Company’s officers to the Internal and External Auditors;

f. The adequacy of the scope, functions, competency and resources of the internal audit department and that it has the necessary authority to carry out its work;



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g. The internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit department;

h. In relation to the internal audit function:

i. Any appraisal or assessment of the performance of the staff members of the internal audit function at the request of the CIA;

ii. Approval of any appointment, transfer or termination of staff members of the internal audit function at the request of the CIA; and

iii. Resignations of internal audit staff members and provide the resigning staff member an opportunity to submit the reasons for resigning;

i. Any problems and reservations arising from the interim and final external audits, and any matters the External Auditors may wish to discuss;

j. Ensure fair and transparent reporting and prompt publication of financial statements of the Company;

k. The quarterly results and year-end financial statements of the Company, prior to approval by the Board, focusing particularly on:

i. changes in or implementation of major accounting policy changes;

ii. significant and unusual events;

iii. compliance with accounting standards and other legal and regulatory requirements;

iv. significant adjustments arising from the audit; and

v. the going concern assumption;

l. Evaluate the adequacy and implementation of the anti-money laundering and counter financing of terrorism programme for the Group;

m. Any related party transactions and conflict of interest situation that may arise within the Company or the Group including any transaction, procedure or course of conduct that raises questions about the Management’s integrity.

6.2 The AC is also tasked with performing the following roles and discharging the following responsibilities:

a. Recommend the nomination and appointment of the External Auditors and in relation thereto, to discuss their audit fees and any questions of resignation or dismissal;

b. Monitor organisational compliance with relevant statutory and regulatory requirements;

c. With regard to regulatory examinations/ inspection reports/ reporting obligations, ensure:

i. proper implementation and recommend appropriate implementation and remedial and corrective measures in respect of the findings arising from examinations/ inspections conducted by the regulatory authorities; and

ii. timely and effective communications/ reporting to the regulators on matters affecting the safety and soundness of the Company and its subsidiaries upon becoming aware of the same;

d. Review the provision of non-audit services by the External Auditors together with the related fees and approve or recommend the same to the Board for approval in line with the Group’s Policy on Non-Audit Services by External Auditors;

e. Perform any other functions as may be mutually agreed by the AC and the Board;

f. Ensure that appropriate disclosure on the AC is made in the Company’s Annual Report; and

g. Report breaches to Bursa Securities – where there is a matter reported by the AC to the Board that has not been satisfactorily resolved resulting in a breach of the MMLR.

O T H E R S

Employees Share Option Scheme

The AC noted that there was no Employees Share Option Scheme put in place during the year.




071STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL

I N T R O D U C T I O N

Pursuant to Paragraph 15.26(b) of the Main Market Listing Requirements (MMLR) of Bursa Malaysia Securities Berhad (Bursa Securities), a listed issuer must ensure that its Board of Directors (the Board) includes in its annual report a statement about the state of its risk management and internal controls. In addition, the Revised Malaysian Code on Corporate Governance 2012 (MCCG 2012) also stipulates that the Board should maintain a sound system of internal controls, including a review of its effectiveness to safeguard shareholders’ investments and the Group’s assets.

Set out below is the Board’s Statement on Risk Management and Internal Control in compliance with the MMLR of Bursa Securities.

B O A R D R E S P O N S I B I L I T Y

The Board is committed to maintaining a sound system of internal controls and has instituted a risk management framework, as well as good corporate governance measures, to monitor the Group’s effectiveness in safeguarding shareholders’ investments and the Group’s assets.

These measures complement the Board’s responsibilities for the overall effectiveness of the Group-wide risk management framework and a sound system of internal controls.

The Board is responsible for determining key strategies and policies for significant risks and control issues while functional Management is responsible for the effective implementation of the Board’s policies by way of identifying, monitoring and managing risks. However, as any system of internal controls will have its inherent limitations, the system has been designed to manage risks rather than provide absolute assurance against material misstatement, fraud or loss.

The Board has also received reasonable assurance from the Group Managing Director and Group Chief Financial Officer that the Group’s risk management and internal control system is operating adequately and effectively, in all material aspects.

R I S K M A N A G E M E N T A N D I N T E R N A L C O N T R O L S Y S T E M

The Board and Management of the Group are committed to the implementation of an internal control system to manage those risks that could affect the Group’s continued growth and financial viability.

As such, measures are taken to continuously evaluate changes in the risk profile of the Group and in business complexities to assist the Board and Management in anticipating and managing all potential risks and in protecting shareholders’ value.

The key elements of the Group’s internal control system include the following:

1. An organisational structure which is aligned to business and operational requirements, and which is led by Heads of Departments with accountability in place;

2. Integrated business planning and operational budgeting processes driven by commercial objectives;

3. A clear definition of authority and responsibilities that have been approved by the Board and subject to continuous updating and review;

4. Standard operating manuals, which document organisation-wide policies and procedures to ensure compliance with internal controls and applicable laws and regulations, are reviewed periodically to meet changes in business operations and regulatory requirements;

5. Regular training and updates for employees on Bank Negara Malaysia’s (BNM), Bursa Securities’ and the Securities Commission Malaysia’s (SC) requirements/ guidelines, as well as on the importance of corporate governance, risk management and internal control;

6. Establishment of strong risk management governance with an enterprise risk management framework as a pillar for other risk guidelines and sound practices by Group Risk Management (GRM). The risk governance structure in the framework defines the roles and responsibilities throughout the organisation to ensure accountability and ownership;

7. Establishment of risk policies, tools and methodologies to identify, quantify and manage the risks. GRM is also responsible for establishing the risk measurement and monitoring process to ensure that the Group’s risk profile and portfolio concentration are reported to the various risk committees on a regular basis;


K & N KENANGA


2015

072

8. The risk management philosophy adopted by the Group is based on the three (3) lines of defence approach. Line management is the first (1st) line of defence and is primarily responsible for day-to-day risk management by identifying risks, assessing their impact and taking appropriate action to manage and mitigate risks.

The second (2nd) line of defence comprises the oversight functions which are GRM and Group Compliance. They perform independent monitoring of business units, reporting to Management to ensure that the Group is conducting business and operations within internal guidelines and is regulatory compliant.

The third (3rd) line of defence is Group Internal Audit (GIA) which provides independent assurance to the Board on the effectiveness and efficiency of the system of internal controls and risk management and governance processes;

9. Establishment of a Group Approving Authority Framework to ensure that approving authorities are granted to appropriate individuals or committees and there is no significant concentration of authority given to a single person or committee;

10. Comprehensive internal credit analysis and evaluations based on a number of factors and sources of information, such as due diligence investigation, credit checks, bankruptcy searches, evaluation of business financial performance and industry risk review, are conducted to mitigate credit risks;

11. Under operational risk management, with the implementation of a Risk Control Self-Assessment tool, each business unit undertakes regular self-assessment to identify and assess the effectiveness of the controls put in place for all material products, activities, processes and systems to manage the risks identified. This tool serves as an early warning signal to drive appropriate Management action before risks materialise into losses;

12. Establishment of a product development guideline for any new product or service that the Group intends to launch, to ensure that all material risks associated with the new product or service are identified, assessed and managed via appropriate risk management controls;

13. Compliance reviews and monitoring are undertaken by Group Regulatory & Corporate Services (Group Regulatory) using various tools and approaches based on the framework set by Group Regulatory. These reviews and monitoring are performed to assess the level of compliance with the relevant regulatory requirements and the respective companies’ internal policies and procedures. Any regulatory deviation or compliance breach will be reported to the respective Boards and the relevant regulators. Appropriate corrective action, including disciplinary action, will be taken to address the deviation/ breach with a view to pre-empt and prevent the occurrence of a similar breach.

A list of identified laws, regulations and other regulatory instruments applicable to the Group is documented and maintained to facilitate compliance. Group Regulatory also provides timely, structured and comprehensive advice and support to the Group in matters relating to the laws and rules applicable to the Group. The Group also has a self-assessment framework in place to facilitate and promote regulatory compliance by the business line units within the Group.

The Board is satisfied that in 2015 the Group complied with the principles and recommendations of the “Corporate Governance Guide (Second (2nd) Edition) 2013” and “MCCG 2012”;

14. GIA provides independent and objective assurance to the Board that the established internal controls and risk management and governance processes are adequate and are operating effectively and efficiently. To ensure independence and objectivity, GIA reports independently to the Audit Committee (AC) and has no responsibility for or authority over any of the activities it reviews.

An Annual Audit Plan based on the appropriate risk-based methodology has been developed and approved by the AC. On a quarterly basis, audit reports and status of internal audit activities, including the sufficiency of GIA resources, are presented to the AC for review.

Periodic follow-up reviews are conducted to ensure adequate and timely implementation of Management’s action plans;

STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL



073STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL

15. Quarterly meetings are held by the AC together with Management to review issues highlighted in the reports by internal and external auditors, as well as in audits conducted by regulators such as the SC, Bursa Securities and BNM, and in particular, the actions taken to address these issues. If required, the internal auditors will also assist the AC to periodically review the measures taken to address the AC’s concerns on any internal control system;

16. Regular Board and Management meetings are held to review the operational and financial performance of the Group and assess any significant internal control issues highlighted by the AC, GIA, Group Regulatory, regulators and external auditors so as to seek resolution of those matters;

17. The Board does not regularly review the internal control systems of associate-companies as the Board does not have any direct control over their operations. Notwithstanding the above, the Group’s interests are served through representation on the Boards of the respective associate-companies, and through receipt and review of management accounts and related enquiries thereon. Such representation also provides the Board with information for decision-making on the continuity of the Group’s investments based on the performance of these associate-companies. The representation also enables the Group to influence the financial and operating policies of the associate-companies;

18. Management is responsible for, amongst others:

- reviewing actual performance against expectations and budget on a quarterly basis;

- addressing any internal control issues with the AC and GIA; and

- addressing any matters arising from the meetings of the Board and the AC and ensuring that actions are taken in relation to these matters.

E F F E C T I V E N E S S O F R I S K M A N A G E M E N T F R A M E W O R K A N D I N T E R N A L C O N T R O L S Y S T E M

The Board confirms that the risk management framework and the system of internal controls, including the key elements highlighted above, was implemented to identify, evaluate and manage significant risks faced by the Group during the financial year and has taken into consideration any material developments up to the date of approval of the Annual Report and Financial Statements.

The Board is satisfied that there is a sound system of risk management and internal controls in the Group which is functioning adequately and there are regular checks to ensure the controls are efficient and effective.

R E V I E W O F T H E S T A T E M E N T B Y E X T E R N A L A U D I T O R S

As required by Paragraph 15.23 of the MMLR of Bursa Securities, the external auditors have reviewed this Statement on Risk Management and Internal Control. Their review was performed in accordance with the Recommended Practice Guide (RPG) 5 (Revised), Guidance for Auditors on Engagements to Report on the Statement on Risk Management and Internal Control included in the Annual Report issued by the Malaysian Institute of Accountants. Based on the review, the external auditors have reported to the Board that nothing has come to their attention that causes them to believe that this Statement is inconsistent with their understanding of the process that the Board has adopted in the review of the adequacy and integrity of the internal controls of the Group. RPG5 does not require the external auditors to, and they did not, consider whether this Statement covers all risks and controls, or to form an opinion on the effectiveness of the Group’s risk and control procedures.

This Statement on Risk Management and Internal Control is made in accordance with the resolution of the Board dated 25 February 2016.


K & N KENANGA


2015

074

(From left to right) Ahmad Junaidi Credit Equity Broking | Jessica Niteen Credit Equity Broking | Yong Chiew Ping Investment Banking



075

WORKING TOGETHER TOWARDS

CONTINUOUS GROWTH

FINANCIALS

K & N KENANGA


2015

076

2015

RM’0002014

RM’0002013

RM’0002012

RM’0002011

RM’000

RESULTS

Operating Revenue 562,988 595,161 517,604 302,599 276,907

Profit before Taxation

- continuing operations 18,223 41,767 8,791 6,266 15,537

Profit after Taxation and non-controlling interest 11,304 29,506 6,191 220 7,901

ASSETS

Total Assets 6,120,805 5,730,045 5,669,038 5,471,116 3,390,447

Net Assets 854,982 854,582 811,133 823,961 758,250

SHAREHOLDERS’ FUNDS

Paid-up share capital 731,759 731,759 731,759 731,759 611,759

Shareholders’ funds 854,982 854,582 811,133 823,961 758,250

FINANCIAL RATIOS

Net return on average shareholders’ funds (%) 1.32 3.54 0.76 0.03 1.05

Net return on average assets (%) 0.19 0.52 0.11 0.01 0.23

SHARE INFORMATION

Basic earnings per share (sen) 1.56 4.03 0.85 0.04 1.29

Net assets backing per share (RM) 1.2 1.2 1.1 1.1 1.2

Dividend cover (times) 1.56 - - 0.05 -

Net dividend per share (sen) 1 - - 0.75 -

FIVE (5) YEARS GROUP FINANCIAL SUMMARY

FINANCIALS


077FIVE (5) YEARS GROUP FINANCIAL SUMMARY

PROFIT BEFORE TAXATION

RM’000

RM 562,988THOUSAND

RM 18,223THOUSAND

RM 854,982THOUSAND

1.56 senRM 854,982THOUSAND

BASIC EARNINGS PER SHARE

SEN

OPERATING REVENUE

RM’000

NET ASSETS

RM’000

SHAREHOLDERS’ FUNDS

RM’000

’13 ’13’11

562,9

88

’15 ’15 ’13 ’13’14

595,

161

’13

517,

604

’12

302,

599

276,

907

’14

854,

582

811,

133

’12

823,

961

758,

250

’11 ’14

854,

582

811,

133

’12

823,

961

’11

758,

250

’14

41,7

67

8,79

1

’12

6,26

6

’11

15,5

37

’14

4.03

0.85

’12

0.04

’11

1.29

854,9

82

’15

854,9

82

18

,22

3

’15

1.5

6

’15

FINANCIALS

K & N KENANGA


2015

078

079 Directors’ Report

083 Statement by Directors

083 Statutory Declaration

084 Independent Auditors’ Report

086 Consolidated Statement of Financial Position

087 Statement of Financial Position

088 Statements of Profit or Loss and Other

Comprehensive Income

090 Consolidated Statement of Changes in Equity

092 Company Statement of Changes in Equity

093 Consolidated Statement of Cash Flows

095 Statement of Cash Flows

096 Notes to the Financial Statements

FINANCIAL STATEMENTS

FINANCIALS


079DIRECTORS’ REPORT

The directors have pleasure in presenting their report together with the audited financial statements of K & N Kenanga Holdings Berhad (“the Company”) and its subsidiaries (“the Group”) for the financial year ended 31 December 2015.

P R I N C I P A L A C T I V I T I E S

The principal activities of the Company are that of investment holding and provision of management services. The principal activities of the subsidiaries are described in Note 14 to the financial statements.

There were no significant changes in the nature of the principal activities during the financial year.

R E S U L T S

Group RM’000

Company RM’000

Profit after taxation and zakat 10,915 2,386 Share of results of associates 1,546 - Profit for the financial year 12,461 2,386

Attributable to:Equity holders of the Company 11,304 2,386 Non-controlling interests 1,157 - Profit for the financial year 12,461 2,386

There were no material transfers to or from reserves or provisions during the financial year, other than as disclosed in the financial statements.

In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature.

D I V I D E N D S

An interim single tier dividend of 1.0 sen per share on the Company’s adjusted issued and paid-up share capital of RM724,903,099 (excluding 6,856,400 treasury shares held pursuant to Section 67A of the Companies Act, 1965) was paid on 25 June 2015 as per entitlement on 16 June 2015 comprising 724,903,099 shares amounting to RM7,249,031 for the financial year ended 31 December 2014.

The Company does not recommend any final dividend for the current financial year.

I S S U E O F S H A R E S

The Company had not issued any new shares or debentures during the financial year.

FINANCIALS

K & N KENANGA


2015

080 DIRECTORS’ REPORT

S H A R E S B U Y - B A C K

The shareholders of the Company, via an ordinary resolution passed at the Annual General Meeting held on 28 May 2015, had approved the Company’s plan to purchase its own shares up to 10% of existing total issued and paid-up share capital.

During the financial year, the Company bought back 9,212,500 ordinary shares of RM1.00 each, as stated in Note 28 to the financial statements at an average price of RM0.7170 from the open market. The share buy-back transactions were financed by internally generated funds. As at 31 December 2015, the total number of shares bought was 9,212,500 and were held as treasury shares in accordance with the provisions of Section 67A of the Companies Act, 1965. Accordingly the adjusted issued and paid-up share capital of the Company (excluding 9,212,500 treasury shares as at 31 December 2015) was RM725,155,552 comprising 722,546,999 shares.

D I R E C T O R S

The names of the directors of the Company in office since the date of the last report and at the date of this report are:

Tengku Dato’ Paduka Noor Zakiah Binti Tengku IsmailDatuk Syed Ahmad Alwee Alsree Datuk Chay Wai LeongDato’ Richard Alexander John Curtis Luigi Fortunato GhirardelloDatuk Kevin How KowIsmail Harith MericanIzlan Bin IzhabLuk Wai Hong, William Nilesh Navlakha (Resigned on 26 May 2015)

D I R E C T O R S ’ B E N E F I T S

Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the directors might acquire benefits by means of acquisition of shares in or debentures of the Company or any other body corporate.

Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors or the fixed salary of a full time employee of the Company as shown in Note 38 of the financial statements or from related corporations) by reason of a contract made by the Company or a related corporation with any director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest.


FINANCIALS

081DIRECTORS’ REPORT

D I R E C T O R S ’ I N T E R E S T S

The following directors in office at the end of the financial year had, according to the register required to be kept under Section 134 of the Companies Act 1965, any interests in shares in the Company as stated below:

Number of Ordinary Shares of RM1 each

The Company At

1.1.2015 Acquired Sold At

31.12.2015

Direct Interest:Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail 100,969,770 - - 100,969,770 Luigi Fortunato Ghirardello 140,000 - - 140,000 Datuk Chay Wai Leong 1,000,000 - - 1,000,000 Dato’ Richard Alexander John Curtis - 800,000 - 800,000

Deemed Interest:Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail * 43,500 - - 43,500

* Deemed interest by virtue of shares held by person connected.

Other than as disclosed above, none of the other directors in office at the end of the financial year had any interest in shares in the Company and its related corporations during the financial year.

O T H E R S T A T U T O R Y I N F O R M A T I O N

(a) Before the financial statements of the Group and of the Company were made out, the directors took reasonable steps:

(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and

(ii) to ensure that any current assets which were unlikely to realise their value as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.

(b) At the date of this report, the directors are not aware of any circumstances which would render:

(i) the amount written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; and

(ii) the values attributed to current assets in the financial statements of the Group and of the Company misleading.

(c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate.

(d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the consolidated financial statements misleading.

K & N KENANGA


2015

FINANCIALS

082

O T H E R S T A T U T O R Y I N F O R M A T I O N ( C O N T ’ D . )

(e) At the date of this report, there does not exist:

(i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or

(ii) any contingent liability in respect of the Group and of the Company which has arisen since the end of the financial year.

(f) In the opinion of the directors:

(i) no contingent liability or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations as and when they fall due, other than as disclosed in Note 44 to the financial statements; and

(ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made.

C O M P L I A N C E W I T H B A N K N E G A R A M A L A Y S I A ’ S P O L I C Y D O C U M E N T O N F I N A N C I A L R E P O R T I N G

The directors have taken reasonable steps to ensure that the preparation of the financial statements of the Group and of the Company are in compliance with the Bank Negara Malaysia’s Policy Document on Financial Reporting and the Guidelines on Classification and Impairment Provisions for Loan/Financing.

S I G N I F I C A N T A N D S U B S E Q U E N T E V E N T S

Details of significant and subsequent events are disclosed in Note 53 to the financial statements.

A U D I T O R S

The auditors, Ernst & Young, have expressed their willingness to continue in office.

Signed on behalf of the Board in accordance with a resolution of the Board of Directors.

Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail Datuk Chay Wai Leong

Kuala Lumpur25 February 2016

DIRECTORS’ REPORT


FINANCIALS

083

We, Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail and Datuk Chay Wai Leong, being two of the directors of K & N Kenanga Holdings Berhad, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 86 to 216 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2015 and of their financial performance and cash flows for the financial year then ended.

The information set out in Note 54 to the financial statements on page 217 have been prepared in accordance with the Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants.

Signed on behalf of the Board in accordance with a resolution of the Board of Directors.

Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail Datuk Chay Wai Leong

Kuala Lumpur25 February 2016

STATEMENT BY DIRECTORSP U R S U A N T T O S E C T I O N 1 6 9 ( 1 5 ) O F T H E C O M P A N I E S A C T , 1 9 6 5

STATUTORY DECLARATIONP U R S U A N T T O S E C T I O N 1 6 9 ( 1 6 ) O F T H E C O M P A N I E S A C T , 1 9 6 5

I, Cheong Boon Kak, being the officer primarily responsible for the financial management of K & N Kenanga Holdings Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 86 to 217 are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the abovenamed Cheong Boon Kak at Kuala Lumpur in the Federal Territoryon 25 February 2016 Cheong Boon Kak

Before me,

K & N KENANGA


2015

FINANCIALS

084

R E P O R T O N T H E F I N A N C I A L S T A T E M E N T S

We have audited the financial statements of K & N Kenanga Holdings Berhad (the “Company”), which comprise statements of financial position as at 31 December 2015 of the Group and of the Company, and statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the financial year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 86 to 216.

Directors’ responsibility for the financial statements

The directors of the Company are responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 1965 (“the Act”) in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation of financial statements that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the Group and of the Company as at 31 December 2015 and of their financial performance and cash flows for the financial year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 1965 in Malaysia.

R E P O R T O N O T H E R L E G A L A N D R E G U L A T O R Y R E Q U I R E M E N T S

In accordance with the requirements of the Companies Act 1965 in Malaysia, we also report the following:

(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries have been properly kept in accordance with the provisions of the Act.

(b) We are satisfied that the financial statements of the subsidiaries that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes.

(c) The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification and in respect of the subsidiaries incorporated in Malaysia, did not include any comment required to be made under Section 174(3) of the Act.

INDEPENDENT AUDITORS’ REPORTT O T H E M E M B E R S O F K & N K E N A N G A H O L D I N G S B E R H A D ( I N C O R P O R A T E D I N M A L A Y S I A )


FINANCIALS

085

O T H E R R E P O R T I N G R E S P O N S I B I L I T I E S

The supplementary information set out in Note 54 on page 217 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants (“MIA Guidance”) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad.

O T H E R M A T T E R S

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

Ernst & Young Chan Hooi LamAF: 0039 No. 2844/02/18(J)Chartered Accountants Chartered Accountant

Kuala Lumpur, Malaysia 25 February 2016

INDEPENDENT AUDITORS’ REPORTT O T H E M E M B E R S O F K & N K E N A N G A H O L D I N G S B E R H A D ( I N C O R P O R A T E D I N M A L A Y S I A )

K & N KENANGA


2015

FINANCIALS

086 CONSOLIDATED STATEMENT OF FINANCIAL POSITIONA S A T 3 1 D E C E M B E R 2 0 1 5

Group Note 2015

RM’000 2014

RM’000

ASSETSCash and bank balances 5 1,367,926 1,019,129 Financial assets held-for-trading 6 338,573 72,635 Financial investments available-for-sale 7 1,249,661 1,709,916 Financial investments held-to-maturity 8 40,003 10,005 Derivative financial assets 9 2,910 44 Loans, advances and financing 10 1,930,064 1,890,768 Balances due from clients and brokers 11 457,327 378,304 Other assets 12 225,966 122,776 Statutory deposit with Bank Negara Malaysia 13 120,753 127,576 Investments in associates 15 66,838 59,222 Property, plant and equipment 16 35,698 59,929 Tax recoverable 8,229 6,186 Deferred tax assets 17 10,025 6,247 Intangible assets 18 266,832 267,308 TOTAL ASSETS 6,120,805 5,730,045

LIABILITIESDeposits from customers 19 3,229,065 3,092,611 Deposits and placements of banks and other financial institutions 20 575,159 688,054 Obligations on securities sold under repurchase agreements 21 95,310 - Balances due to clients and brokers 22 896,302 744,762 Other liabilities 23 246,228 180,680 Derivative financial liabilities 24 72,278 7,237 Borrowings 25 141,000 152,336 Provision for taxation and zakat 732 1,169 Deferred tax liabilities 17 - 22 TOTAL LIABILITIES 5,256,074 4,866,871

SHAREHOLDERS’ EQUITYShare capital 26 731,759 731,759 Reserves 27 129,827 122,823 Treasury shares 28 (6,604) - Equity attributable to equity holders of the Company 854,982 854,582 Non-controlling interests 9,749 8,592 TOTAL SHAREHOLDERS’ EQUITY 864,731 863,174 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 6,120,805 5,730,045 Commitments and contingencies 44 2,164,199 1,959,542

The accompanying notes form an integral part of the financial statements.


FINANCIALS

087STATEMENT OF FINANCIAL POSITIONA S A T 3 1 D E C E M B E R 2 0 1 5

Company Note 2015

RM’000 2014

RM’000

ASSETSCash and bank balances 5 3,347 9,760 Financial assets held-for-trading 6 19,831 16,781 Other assets 12 67,726 92,424 Investments in subsidiaries 14 763,737 763,737 Investments in associates 15 1,187 1,187 Property, plant and equipment 16 2,325 1,978 Tax recoverable 2,471 2,244 Deferred tax assets 17 638 976 TOTAL ASSETS 861,262 889,087

LIABILITIESOther liabilities 23 7,199 33,767 Provision for taxation 210 - Borrowings 25 110,000 100,000 TOTAL LIABILITIES 117,409 133,767

SHAREHOLDERS’ EQUITYShare capital 26 731,759 731,759 Reserves 27 18,698 23,561 Treasury shares 28 (6,604) - TOTAL SHAREHOLDERS’ EQUITY 743,853 755,320 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 861,262 889,087


K & N KENANGA


2015

FINANCIALS

088 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

F O R T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 5

Group Company

Note 2015

RM’000 2014

RM’000 2015

RM’000 2014

RM’000

Continuing operationsOperating revenue 29 562,988 595,161 38,160 31,360

Interest income 30 237,095 214,485 3,490 1,498 Interest expense 31 (154,640) (138,012) (5,200) (3,245)Net interest income/(expense) 82,455 76,473 (1,710) (1,747)Net income from Islamic banking operations 50(b) 9,443 5,401 - - Other operating income 32 307,425 369,958 34,670 29,858 Net income 399,323 451,832 32,960 28,111 Other operating expenses 33 (381,648) (402,811) (29,813) (33,338)Operating profit/(loss) 17,675 49,021 3,147 (5,227)Write back of impairment on loans,

advances and financing 34 1,335 726 - - Allowance for impairment on balances

due from clients, brokers and other receivables 35 (2,333) (10,414) - -

16,677 39,333 3,147 (5,227)Share of results of associates 1,546 2,434 - - Profit/(loss) before taxation 18,223 41,767 3,147 (5,227)Income tax (expense)/credit 40 (5,762) (11,297) (761) 248 Profit/(loss) for the financial year from

continuing operations 12,461 30,470 2,386 (4,979)

Discontinued operationLoss for the financial year from discontinued

operation - (147) - - Profit/(loss) for the financial year 12,461 30,323 2,386 (4,979)


FINANCIALS

089STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEF O R T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 5

Group Company

Note 2015

RM’000 2014

RM’000 2015

RM’000 2014

RM’000

Other comprehensive income/(loss)Items that may be reclassified

subsequently to profit or loss: Foreign exchange differences on

consolidation 14,226 3,197 - - Share of other comprehensive loss

in associates (8,156) (3,830) - - Net (loss)/gain on fair value changes of

financial investments available-for-sale (3,937) 19,435 - - Income tax relating to the components of

other comprehensive income 17 816 (4,859) - - Other comprehensive income for

the financial year 2,949 13,943 - - Total comprehensive income for

the financial year 15,410 44,266 2,386 (4,979)

Profit/(loss) for the financial year attributable to:

Equity holders of the Company 11,304 29,506 2,386 (4,979)Non-controlling interests 1,157 817 - -

12,461 30,323 2,386 (4,979)

Total comprehensive income attributable to:Equity holders of the Company 14,253 43,449 2,386 (4,979)Non-controlling interests 1,157 817 - -

15,410 44,266 2,386 (4,979)

Earnings per share attributable to equity holders of the Company (sen per share) 41

Basic/diluted profit from continuing operations 1.56 4.05

Basic loss from discontinued operation - (0.02)Basic/diluted profit for the financial year 1.56 4.03


K & N KENANGA


2015

FINANCIALS

090 CONSOLIDATED STATEMENT OF CHANGES IN EQUITYF O R T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 5

Attr

ibut

able

to e

quity

hol

ders

of t

he C

ompa

ny

Non

-dis

tribu

tabl

e D

istri

buta

ble

Sha

reca

pita

l(N

ote

26)

Cap

ital

rese

rve

(Not

e 27

)

Sha

repr

emiu

m(N

ote

27)

Exch

ange

rese

rve

(Not

e 27

)

Ava

ilabl

e-fo

r-sal

ere

serv

e(N

ote

27)

Sta

tuto

ryre

serv

e(N

ote

27)

Reg

ulat

ory

rese

rve

(Not

e 27

)

Ret

aine

dpr

ofit/

(acc

umul

ated

loss

)(N

ote

27)

Trea

sury

shar

es(N

ote

28)

Tota

lat

tribu

tabl

eto

equ

ityho

lder

s

Non

-co

ntro

lling

inte

rest

sTo

tal

equi

ty

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

At

1 Ja

nuar

y 20

15 7

31,7

59

22,

152

75

7,4

27

(8,2

76)

88,

815

-

12,

630

-

854

,582

8

,592

8

63,1

74

Net

pro

fit fo

r th

e fin

anci

al y

ear

-

-

-

-

-

-

-

11,3

04 -

1

1,30

4 1

,157

1

2,46

1

Sha

re o

f oth

er

com

preh

ensi

ve lo

ss

in a

ssoc

iate

s -

-

-

-

(8

,156

) -

-

-

-

(8

,156

) -

(8

,156

)

Oth

er c

ompr

ehen

sive

in

com

e/(lo

ss)

-

-

-

14,2

26 (3

,121

) -

-

-

-

1

1,10

5 -

1

1,10

5

Tota

l com

preh

ensi

ve

inco

me/

(loss

) for

the

finan

cial

yea

r -

-

-

1

4,22

6 (1

1,27

7) -

-

1

1,30

4 -

1

4,25

3 1

,157

1

5,41

0

Buy

-bac

k of

sha

res

-

-

-

-

-

-

-

-

(6,6

04)

(6,6

04)

-

(6,6

04)

Tran

sfer

to s

tatu

tory

re

serv

e -

-

-

-

-

5

,808

-

(5

,808

) -

-

-

-

Tran

sfer

to re

gula

tory

re

serv

e -

-

-

-

-

-

2

2,11

1 (2

2,11

1) -

-

-

-

Div

iden

d pa

id (N

ote

42)

-

-

-

-

-

-

-

(7,2

49)

-

(7,2

49)

-

(7,2

49)

At

31 D

ecem

ber

201

5 7

31,7

59

22,

152

75

21,

653

(19,

553)

94,

623

22,

111

(11,

234)

(6,6

04)

854

,982

9

,749

8

64,7

31


FINANCIALS

091CONSOLIDATED STATEMENT OF CHANGES IN EQUITYF O R T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 5

Attr

ibut

able

to e

quity

hol

ders

of t

he C

ompa

ny

Non

-dis

tribu

tabl

e D

istri

buta

ble

Sha

reca

pita

l(N

ote

26)

Cap

ital

rese

rve

(Not

e 27

)

Sha

repr

emiu

m(N

ote

27)

Exch

ange

rese

rve

(Not

e 27

)

Ava

ilabl

e-fo

r-sal

ere

serv

e(N

ote

27)

Sta

tuto

ryre

serv

e(N

ote

27)

Reg

ulat

ory

rese

rve

(Not

e 27

)

(Acc

umul

ated

loss

es)/

reta

ined

profi

t(N

ote

27)

Trea

sury

shar

es(N

ote

28)

Tota

lat

tribu

tabl

eto

equ

ityho

lder

s

Non

-co

ntro

lling

inte

rest

sTo

tal

equi

ty

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

At

1 Ja

nuar

y 20

14 7

31,7

59

22,

152

75

4,2

30

(19,

022)

75,

887

-

(3,9

48)

-

811

,133

7

,775

8

18,9

08

Net

pro

fit fo

r th

e fin

anci

al y

ear

-

-

-

-

-

-

-

29,5

06 -

2

9,50

6 8

17

30,

323

Sha

re o

f oth

er

com

preh

ensi

ve lo

ss

in a

ssoc

iate

s -

-

-

-

(3

,830

) -

-

-

-

(3

,830

) -

(3

,830

)

Oth

er c

ompr

ehen

sive

in

com

e -

-

-

3,

197

14,

576

-

-

-

-

17,

773

-

17,

773

Tota

l com

preh

ensi

ve

inco

me

for

the

finan

cial

yea

r -

-

-

3

,197

1

0,74

6 -

-

2

9,50

6 -

4

3,44

9 8

17

44,

266

Tran

sfer

to s

tatu

tory

re

serv

e -

-

-

-

-

1

2,92

8 -

(1

2,92

8) -

-

-

-

At

31 D

ecem

ber

201

4 7

31,7

59

22,

152

75

7,4

27

(8,2

76)

88,

815

-

12,

630

-

854

,582

8

,592

8

63,1

74

K & N KENANGA


2015

FINANCIALS

092 COMPANY STATEMENT OF CHANGES IN EQUITYF O R T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 5

Non-distributable Distributable

Share capital

(Note 26)

Share premium (Note 27)

Capital reserve

(Note 27)

Retained profits

(Note 27)

Treasury shares

(Note 28) Total

equity RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2015 731,759 75 (49,800) 73,286 - 755,320 Total comprehensive profit - - - 2,386 - 2,386 Buy-back of shares - - - - (6,604) (6,604)Dividend paid (Note 42) - - - (7,249) - (7,249)At 31 December 2015 731,759 75 (49,800) 68,423 (6,604) 743,853

At 1 January 2014 731,759 75 (49,800) 78,265 - 760,299 Total comprehensive loss - - - (4,979) - (4,979)At 31 December 2014 731,759 75 (49,800) 73,286 - 755,320



FINANCIALS

093

Group

Note 2015

RM’000 2014

RM’000

Cash flows from operating activitiesProfit/(loss) before taxation and zakat Continuing operations 18,223 41,767 Discontinued operation - (147)Adjustments for: Depreciation and amortisation 33 9,419 15,970 Share of results in associates (1,546) (2,434) Interest and finance income (254,226) (230,976) Interest expense 7,294 7,565 Gross dividend income from investments 32(c) (3,801) (2,431) Investment and trading income: Financial assets held-for-trading (3,700) (28,295) Financial investments available-for-sale (7,236) 3,012 Allowance for impairment on balances due from clients and brokers 35 2,387 15,065 Write back of impairment on loans, advances and financing 34 (353) (174) Unrealised gain on revaluation of financial assets held-for-trading and derivatives (17,940) (6,176) Gain on disposal of a subsidiary - (487) Property, plant and equipment written off 33 657 723 Gain on disposal of property, plant and equipment 32(e) (168) (307) Loss from dissolution of subsidiaries (50) - Operating loss before working capital changes (251,040) (187,325)Changes in working capital: Receivables (202,250) (81,319) Trust monies and deposits 5 38,332 (78,349) Statutory deposit with Bank Negara Malaysia 6,823 15,574 Deposits from customers 136,454 (160,772) Deposits and placements of banks and other financial institutions (112,895) 202,396 Payables 311,967 (72,968)Cash used in operations (72,609) (362,763) Net tax and zakat paid (11,226) (7,802) Interest received 193,019 171,366 Net cash generated from/(used in) operating activities 109,184 (199,199)

CONSOLIDATED STATEMENT OF CASH FLOWSF O R T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 5

K & N KENANGA


2015

FINANCIALS

094 CONSOLIDATED STATEMENT OF CASH FLOWSF O R T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 5

Group

Note 2015

RM’000 2014

RM’000

Cash flows from investing activitiesDividend income from investments 32(c) 3,801 2,431 Purchase of property, plant and equipment and intangible assets 16 & 18 (6,493) (15,806)Interest income from financial assets held-for-trading and

financial investments available-for-sale 61,207 56,365 Net sales of securities 251,367 297,257 Proceed from disposal of a subsidiary - 332 Proceed/(Loss) from disposal of property, plant and equipment 748 (380)Net cash generated from investing activities 310,630 340,199

Cash flows from financing activitiesInterest paid (7,294) (7,565)Dividend paid 42 (7,249) - Repayment of hire purchase and finance lease (38) (67)Net (repayment)/drawdown of borrowings (11,500) 103,000 Net repayment of subordinated obligations - (1,350)Repayment of Redeemable Non-Convertible Unsecured Loan Stocks (“RULS”) - (47,750)Buy-back of shares 28 (6,604) - Net cash (used in)/generated from financing activities (32,685) 46,268

Net increase in cash and cash equivalents 387,129 187,268 Cash and cash equivalents at beginning of financial year 571,674 384,406 Cash and cash equivalents at end of financial year 958,803 571,674

Cash and cash equivalents at end of financial year comprise: Cash and bank balances 5 958,803 571,674



FINANCIALS

095STATEMENT OF CASH FLOWSF O R T H E F I N A N C I A L Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 5

Company

Note 2015

RM’000 2014

RM’000

Cash flows from operating activitiesProfit/(Loss) before taxation 3,147 (5,227)Adjustments for: Depreciation and amortisation 33 516 466 Interest and finance income 30 (3,490) (1,498) Interest expenses 31 5,200 3,245 Unrealised gain on revaluation of financial assets held-for-trading 32(d) (1,457) (59) Write-off of intercompany balances (1) - Gross dividend income from investments 32(c) (1,593) (979)Operating profit/(loss) before working capital changes 2,322 (4,052)Changes in working capital: Receivables (34) (472) Balances with related companies (1,229) (44,655) Payables (133) 3,148 Cash generated from/(used in) operations 926 (46,031) Net tax paid (440) - Interest received 3,490 1,498 Net cash generated from/(used in) operating activities 3,976 (44,533)

Cash flows from investing activitiesDividend income from investments 1,593 979 Net purchase of financial investments (1,593) (979)Purchase of property, plant and equipment 16 (1,336) (836)Net cash used in investing activities (1,336) (836)

Cash flows from financing activitiesInterest paid 31 (5,200) (3,245)Dividend paid 42 (7,249) - Net drawdown of borrowings 10,000 100,000 Repayment of RULS - (47,750)Buy-back of shares 28 (6,604) - Net cash (used in)/generated from financing activities (9,053) 49,005

Net (decrease)/increase in cash and cash equivalents (6,413) 3,636 Cash and cash equivalents at beginning of financial year 9,760 6,124 Cash and cash equivalents at end of financial year 3,347 9,760

Cash and cash equivalents at end of financial year comprise: Cash and bank balances 5 3,347 9,760


K & N KENANGA


2015

FINANCIALS

096 NOTES TO THE FINANCIAL STATEMENTS3 1 D E C E M B E R 2 0 1 5

1 . C O R P O R A T E I N F O R M A T I O N

K & N Kenanga Holdings Berhad (the “Company”) is a public limited liability company incorporated and domiciled in Malaysia, and is listed on the Main Market of Bursa Malaysia Securities Berhad (“Bursa Securities”). The registered office is located at 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur.

The principal activities of the Company are investment holding and provision of management services. The principal activities of the subsidiaries are described in Note 14. There have been no significant changes in the nature of the principal activities during the financial year.

Pursuant to the Financial Services Act 2013 that came into effect on 30 June 2013, the Company has been designated as a financial holding company.

The financial statements of the Company have been approved and authorised for issue in accordance with a resolution of the Board of Directors on 25 February 2016.

2 . C H A N G E S I N A C C O U N T I N G P O L I C I E S

2.1 Amended Malaysian Financial Reporting Standards (“MFRSs”) adopted The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the

following amended MFRSs, which became effective for the Group and the Company on 1 January 2015.

- Amendments to MFRS 119: Defined Benefit Plans: Employee Contributions - Amendments to MFRSs contained in the documents entitled “Annual Improvements to MFRSs 2010-2012 Cycle”- Amendments to MFRSs contained in the documents entitled “Annual Improvements to MFRSs 2011-2013 Cycle”

The adoption of the amended MFRSs did not have any significant impact on the financial position or performance of the Group and of the Company.

2.2 Standards issued but not yet effective

The following are new and amended MFRSs issued by the Malaysian Accounting Standards Board (“MASB”) that will be effective for the Group and the Company in future years. The Group and the Company intend to adopt the relevant standards when they become effective.


FINANCIALS

097NOTES TO THE FINANCIAL STATEMENTSA S A T 3 1 D E C E M B E R 2 0 1 5

2 . C H A N G E S I N A C C O U N T I N G P O L I C I E S ( C O N T ’ D . )

2.2 Standards issued but not yet effective (cont’d.)

Description

Effective for annual periods beginning

on or after

Amendments to MFRSs contained in the documents entitled “Annual Improvements to MFRSs 2012-2014 Cycle” 1 January 2016

Amendments to MFRS 5: Non-current Assets Held for Sale and Discontinued Operations 1 January 2016

Amendments to MFRS 7: Financial Instruments: Disclosures 1 January 2016

Amendments to MFRS 10, MFRS 12 and MFRS 128: Investment Entities: Applying the Consolidation Exception 1 January 2016

Amendments to MFRS 11: Accounting for Acquisitions of Interests in Joint Operations 1 January 2016

MFRS 14: Regulatory Deferral Accounts 1 January 2016

Amendments to MFRS 101: Disclosure Initiative 1 January 2016

Amendments to MFRS 116 and MFRS 138: Clarification of Acceptable Methods of Depreciation and Amortisation 1 January 2016

Amendments to MFRS 116 and MFRS 141: Agriculture: Bearer Plants 1 January 2016

Amendments to MFRS 119: Employee Benefits 1 January 2016

Amendments to MFRS 127: Equity Method in Separate Financial Statements 1 January 2016

Amendments to MFRS 134: Interim Financial Reporting 1 January 2016

MFRS 9: Financial Instruments 1 January 2018

MFRS 15: Revenue from Contracts with Customers 1 January 2018

Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

To be announced by MASB

The directors expect that the adoption of the above standards will have no material impact on the financial statements

in the period of initial application except as discussed below:

MFRS 9 Financial Instruments

MFRS 9 replaces MFRS 139. MFRS 9 requires financial assets to be classified on the basis of the business model within which they are held and their contractual cash flow characteristics. The requirements related to the fair value option for financial liabilities were also changed to address own credit risk. The adoption of MFRS 9 will have an effect on the classification and measurement of the Group and the Company’s financial assets, but will not have an impact on the classification and measurement of the Group and the Company’s financial liabilities.

MFRS 9 also requires impairment assessments to be based on an expected credit loss model, replacing the MFRS 139 incurred loss model. Finally, MFRS 9 aligns hedge accounting more closely with risk management, establish a more principle-based approach to hedge accounting and address inconsistencies and weaknesses in the previous model.

The Group and the Company are currently assessing the effects of the adoption of this standard.

The new standard will come into effect on 1 January 2018 with early application permitted.

K & N KENANGA


2015

FINANCIALS

098 NOTES TO THE FINANCIAL STATEMENTSA S A T 3 1 D E C E M B E R 2 0 1 5


2.2 Standards issued but not yet effective (cont’d.)

MFRS 15 Revenue from Contracts with Customers MFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. MFRS 15

will supersede the current revenue recognition guidance including MFRS 118 Revenue, MFRS 111 Construction Contracts and the related interpretations when it becomes effective.

The core principle of MFRS 15 is that an entity should recognise revenue which depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Under MFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e when “control” of the goods or services underlying the particular performance obligation is transferred to the customer.

Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2018 with early adoption permitted. The Group is currently assessing the impact of MFRS 15 and plans to adopt the new standard on the required effective date.

2.3 Significant changes in regulatory requirement

(a) Revised Bank Negara Malaysia (“BNM”) Policy Document on Classification and Impairment Provisions for Loans/Financing

On 6 April 2015, BNM issued a revised Policy Document on Classification and Impairment Provisions for Loans/Financing which is applicable to banking institutions in Malaysia. Main changes introduced in the revised BNM Policy Document include classification of a loan/financing as impaired when the loan/financing is rescheduled and restructured (“R&R”) in BNM’s Central Credit Reference Information System (“CCRIS”) and reclassification of a R&R loan/financing from impaired to non-impaired when repayments based on the revised and restructured terms have been observed continuously for a period of at least 6 months.

The requirements in this Policy Document are effective for financial years beginning on or after 1 January 2015, except for the following:

(i) The requirements in paragraph 12 of the Policy Document will apply to loans/financing that are R&R in CCRIS on or after 1 April 2015; and

(ii) The requirement in paragraph 15.2 of the Policy Document for banking institutions to maintain, in aggregate, collective impairment allowance and regulatory reserve of no less than 1.2% of total outstanding loans, advances and financing, net of individual impairment allowance, which will be effective beginning 31 December 2015.

The investment banking subsidiary has adopted the classification of a loan/financing as impaired when the loan/financing is classified as R&R and the reclassification of a R&R loan/financing from impaired to non-impaired in line with the requirements of the BNM Policy Document, and the requirement to maintain regulatory reserve in the current financial year.

The regulatory reserve is maintained in addition to the collective impairment allowance required under MFRS 139 Financial Instruments: Recognition and Measurement, and it is to be transferred from retained profits to a separate reserve within equity as an additional credit risk absorbent.


FINANCIALS



2.3 Significant changes in regulatory requirement (cont’d.)

(a) Revised Bank Negara Malaysia (“BNM”) Policy Document on Classification and Impairment Provisions for Loans/Financing (cont’d.)

During the financial year, the Group via its investment banking subsidiary has transferred RM22.11 million to regulatory reserve from its available current year net profit and by increasing its accumulated losses within equity in accordance with BNM’s requirements. The regulatory reserve does not qualify as Common Equity Tier 1 (“CET1”) capital and Tier 1 capital under the BNM’s Capital Adequacy Framework (Capital Components).

(b) Introduction of the new legislation on Malaysian Goods and Services Tax (“GST”)

In the Malaysian Budget 2014, the Government announced the introduction of the GST which would replace the Sales and Services Tax regime with effect from 1 April 2015.

Under the GST Act 2014, persons having businesses with annual sales turnover exceeding RM500,000 are required to be registered with the Royal Malaysian Customs Department. Persons include an individual, sole proprietor, partnership, company, trust, estate, society, union, club, association or any other organisation including a government department or a local authority which is involved in the business of making taxable supplies in Malaysia.

Entities within the Group and the Company that meet the criteria for GST registration have been registered with the Royal Malaysian Customs Department. The Group and the Company have enhanced the information technology systems, operating policies and procedures to ensure compliance with the GST legislation.

3 . A C C O U N T I N G P O L I C I E S

3.1 Basis of preparation The financial statements of the Group and of the Company have been prepared on a historical cost basis unless

otherwise indicated.

3.2 Statement of compliance

The financial statements of the Group and of the Company have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRSs”), International Financial Reporting Standards (“IFRSs”) and the requirements of the Companies Act, 1965 in Malaysia.

3.3 Functional and presentation currency

The financial statements are presented in Ringgit Malaysia (“RM”), which is also the Company’s functional currency and all values are rounded to the nearest thousand (“RM’000”), unless otherwise stated.

K & N KENANGA


2015

FINANCIALS


3 . A C C O U N T I N G P O L I C I E S ( C O N T ’ D . )

3.4 Summary of significant accounting policies

(a) Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the reporting date.

The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company and consistent accounting policies are applied for like transactions and events in similar circumstances.

The Company controls an investee if and only if the Company has all the following:

(i) Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

(ii) Exposure, or rights, to variable returns from its investment with the investee; and

(iii) The ability to use its power over the investee to affect its returns.

When the Company has less than a majority of the voting rights of an investee, the Company considers the following in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power over the investee:

(i) The size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

(ii) Potential voting rights held by the Company, other vote holders or other parties;

(iii) Rights arising from other contractual arrangements; and

(iv) Any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Subsidiaries are fully consolidated from the date of acquisition, being the date of which the Group obtains control, and continue to be consolidated until the date when such control ceases. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.

Losses within a subsidiary are attributed to the non-controlling interests even if that results in a deficit balance.

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. The resulting difference is recognised directly in equity and attributed to owners of the Company.


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3.4 Summary of significant accounting policies (cont’d.)

(a) Basis of consolidation (cont’d.)

When the Group loses control of a subsidiary, a gain or loss calculated as the difference between:

(i) The aggregate of the fair value of the consideration received and the fair value of any retained interest; and

(ii) The previous carrying amount of the assets and liabilities of the subsidiary and any differences is recognised in profit or loss. The subsidiary’s cumulative gain and loss which has been recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss or where applicable, transferred directly to retained earnings. The fair value of any investment retained in the former subsidiary at the date control is lost is regarded as the cost on initial recognition of an investment in an associate or a joint venture.

Business combinations

Acquisitions of subsidiaries are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. The Group elects on a transaction-by-transaction basis whether to measure the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Transaction costs incurred are expensed and included in administrative expenses.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes in fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with MFRS 139 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within the scope of MFRS 139, it is measured in accordance with the appropriate MFRS.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests over the net assets of the subsidiary acquired. The accounting policy for goodwill is set out in Note 3.4(d)(i).

(b) Subsidiaries

In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss.

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(c) Investments in associates

An associate is an entity in which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

On acquisition of an investment in associate, any excess of the investment cost over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill and included in the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities of the investee over the cost of investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the Group’s share of the associate’s profit or loss for the period in which the investment is acquired.

An associate is equity accounted for from the date on which the investee becomes an associate.

Under the equity method, on initial recognition the investment in an associate is recognised at cost and the carrying amount is increased or decreased to recognise the Group’s share of profit or loss and other comprehensive income of the associate after the date of acquisition. When the Group’s share of losses in an associate equal or exceeds its interest in the associate, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

Profits and losses resulting from upstream and downstream transactions between the Group and its associate are recognised in the Group’s financial statements only to the extent of unrelated investors’ interest in the associate. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred.

The financial statements of the associates are prepared as of the same reporting date as the Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to its net investment in the associate. When necessary, the entire carrying amount of the investment is tested for impairment in accordance with MFRS 136 impairment of assets as a single asset, by comparing its recoverable amount (higher of value-in-use and fair value less costs to sell) with its carrying amount. Any impairment loss is recognised in profit or loss. Reversal of an impairment loss is recognised to the extent that the recoverable amount of the investment subsequently increases.

Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

In the Company’s separate financial statements, investments in associates are accounted for at cost less accumulated impairment losses. On disposal of such investment, the difference between net disposal proceeds and their carrying amounts is included in profit or loss.


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(d) Goodwill and intangible assets

(i) Goodwill

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the date of acquisition, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where the recoverable amount of the cash-generating unit is less than the carrying amount of the cash-generating unit, an impairment loss is recognised in profit or loss. Impairment losses recognised for goodwill are not reversed in subsequent periods. The policy for the recognition and measurement of impairment losses is in accordance with Note 3.4(g).

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

(ii) Other intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair values as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in profit or loss in the financial year in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over their economic useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embedded in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible assets.

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in the useful life from indefinite to finite is made on a prospective basis.

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(d) Goodwill and intangible assets (cont’d.)

(ii) Other intangible assets (cont’d.)

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.

Intangible assets are amortised over their finite useful lives at the following annual rate:

Computer software licence 10% to 33.33% (e) Financial assets Financial assets are recognised in the statements of financial position when, and only when, the Group and the

Company become a party to the contractual provisions of the financial instrument.

(i) Initial recognition and subsequent measurement Financial assets within the scope of MFRS 139 are classified as financial assets at fair value through profit or

loss, loans and receivables, financial investments held-to-maturity, financial investments available-for-sale, as appropriate. The Group and the Company determine the classification of their financial assets at initial recognition.

All financial assets are recognised initially at fair value plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs.

The Group’s and the Company’s financial assets include cash and short-term funds, deposits and placements, financial assets held-for-trading, financial investments available-for-sale, financial investments held-to-maturity, derivative financial assets, loans and other receivables.

(1) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held-for-trading and financial

assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments entered into by the Group and the Company that are not designated as hedging instruments in hedge relationships as defined by MFRS 139. Derivatives, including separated embedded derivatives are also classified as held-for-trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit or loss are carried in the statements of financial position at fair value with changes in fair value recognised in profit or loss.

The Group and the Company evaluate its financial assets held-for-trading, other than derivatives, to determine whether the intention to sell them in the near term is still appropriate. When the Group and the Company are unable to trade these financial assets due to inactive markets and management’s intention to sell them in the foreseeable future significantly changes, the Group and the Company may elect to reclassify these financial assets in rare circumstances. The reclassification to loans and receivables, financial investment available-for-sale or financial investment held-to-maturity depends on the nature of the asset. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation.


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(e) Financial assets (cont’d.)

(i) Initial recognition and subsequent measurement (cont’d.)

(1) Financial assets at fair value through profit or loss (cont’d.)

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held-for-trading or designated at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. The specific accounting policy on derivatives is detailed in Note 3.4(o).

(2) Financial investments available-for-sale (“AFS”)

Financial investments AFS include equity investments and debt securities. Equity investments classified as AFS are those that are neither classified as held-for-trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions.

The Group has not designated any loans, advances and financing as AFS.

After initial measurement, financial investments AFS are subsequently measured at fair value with unrealised gains or losses recognised in other comprehensive income in the “AFS reserve” until the investment is derecognised, at which time the cumulative gain or loss is recognised in “other operating income”, or the investment is determined to be impaired, when the cumulative loss is reclassified from the “AFS reserve” to profit or loss in “impairment losses on financial investments”. Interest income on AFS debt securities is calculated using the effective interest method and is recognised in profit or loss. Foreign exchange gains and losses on monetary instruments are recognised in profit or loss. Dividends on an AFS equity investment are recognised in profit or loss when the right to receive payment is established. Equity investments whose fair value cannot be reliably measured are measured at cost less impairment loss.

The Group and the Company evaluate whether the ability and intention to sell its financial investments AFS in the near term is still appropriate. When the Group and the Company are unable to trade these financial investments due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group and the Company may elect to reclassify these financial investments in rare circumstances. Reclassification to loans and receivables is permitted when the financial investments meet the definition of loans and receivables and the Group and the Company have the intent and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the held-to-maturity category is permitted only when the Group and the Company have the ability and intention to hold the financial investments accordingly.

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(i) Initial recognition and subsequent measurement (cont’d.)

(2) Financial investments available-for-sale (“AFS”) (cont’d.)

For a financial investment reclassified from the AFS category, any previous gain or loss on that investment that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest method. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the investment using the effective interest method. If the investment is subsequently determined to be impaired, then the amount recorded in equity is reclassified to profit or loss.

(3) Financial investments held-to-maturity Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified

as financial investments held-to-maturity when the Group and the Company have the positive intention and ability to hold them to maturity. After initial measurement, financial investments held-to-maturity are measured at amortised cost using the effective interest method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate (“EIR”). The EIR amortisation and losses arising from impairment of such investments are recognised in profit or loss.

If the Group and the Company were to sell or reclassify more than an insignificant amount of financial investments held-to-maturity before maturity (other than in certain specific circumstances), the entire category would be tainted and would have to be reclassified as financial investments AFS. Furthermore, the Group and the Company would be prohibited from classifying any financial investments as held-to-maturity during the following two years.

(4) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method less allowance for impairment. Gains and losses are recognised in profit or loss when the loans are impaired, and through the amortisation process.

(ii) Reclassification of financial assets

Reclassifications are made at fair value as of the reclassification date. The fair value becomes the new cost or amortised cost as applicable. Any gain or loss already recognised before the reclassification date is not reversed.


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(iii) Derecognition

A financial asset is derecognised when the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

Regular way purchases or sales are purchases or sales of financial assets that require delivery of asset within the period generally established by regulation or convention in the market place concerned. All regular way purchases and sales of financial assets are recognised or derecognised on the trade date, i.e., the date that the Group and the Company commit to purchase or sell the asset.

(iv) Determination of fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

- in the principal market for the asset or liability, or- in the absence of a principal market, in the most advantageous market for the asset or liability.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Group and the Company use valuation techniques that are appropriate in the circumstances for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

The fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 49.

For financial instruments measured at fair value, where available, quoted and observable market prices in an active market or dealer price quotations are used to measure fair value. These include listed equity securities and broker quotes from Bloomberg.

(f) Impairment of financial assets

The Group and the Company assess at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occured after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

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(f) Impairment of financial assets (cont’d.) (i) Financial investments held-to-maturity

Evidence of impairment may include indications that the debt issuer is experiencing significant financial difficulty and default or delinquency in interest or principal repayments.

For financial investments carried at amortised cost in which there is objective evidence of impairment, impairment loss is measured as the difference between the carrying amount and the present value of the estimated future cash flows discounted at the original EIR. The amount of the impairment loss is recognised in profit or loss.

(ii) Financial investments AFS

Significant or prolonged decline in fair value below cost, significant financial difficulties of the issuer or obligor, and the disappearance of an active trading market are considerations to determine whether there is objective evidence that financial investments classified as AFS are impaired.

The cumulative impairment loss is measured as the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss previously recognised in profit or loss.

Impairment losses on investment in equity instruments classified as AFS recognised are not reversed in profit or loss subsequent to their recognition. Increase in fair value, if any, subsequent to the impairment loss is recognised in other comprehensive income. Reversals of impairment losses on debt instruments classified as AFS are recognised in profit or loss if the increase in fair value can be objectively related to an event occurring after the recognition of the impairment loss in other comprehensive income.

(iii) Loans, advances and financing

Individual assessment

The criteria that the Group and the Company use to determine that there is objective evidence of an impairment include:

- any significant financial difficulty of the obligor;- a breach of contract, such as a default or delinquency in interest or principal repayments;- a high probability of bankruptcy or other financial reorganisation of the obligor;- concerns over the viability of the obligor’s business operations and its capacity to trade successfully

out of financial difficulties and to generate sufficient cash flows to service its debt obligations; and- any adverse news or developments affecting the local economic conditions or business environment

which will adversely affect the repayment capacity of the borrower.

The Group and the Company first assess loans individually whether objective evidence of impairment exists. If there is objective evidence that an impairment loss has been incurred, the amount of loss is measured as the difference between the loan’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original EIR. Where appropriate, the calculation of present value of estimated future cash flows of a collateralised loan reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.


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(f) Impairment of financial assets (cont’d.) (iii) Loans, advances and financing (cont’d.)

Collective assessment

Loans which are not individually significant and loans that have been individually assessed with no evidence of impairment loss are grouped together for collective impairment assessment. These loans are grouped within similar credit risk characteristics for collective assessment, whereby data from the loan portfolio (such as credit quality, levels of arrears, credit utilisation, loan to collateral ratios etc.) and concentrations of risks (such as the performance of different individual groups) are taken into consideration.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated based on the historical loss experience of the Group and the Company. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group and the Company to reduce any differences between loss estimates and actual loss experience.

The carrying amount of the financial asset is reduced through the use of an impairment allowance account and the amount of impairment loss is recognised in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be objectively related to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed the amortised cost at the reversal date. The amount is recognised in profit or loss.

An uncollectible financial asset classified as impaired is written-off after taking into consideration the realisable value of collateral, if any, when in the opinion of management there is no prospect of recovery.

(iv) Renegotiated loans For renegotiated loans, the Group and the Company may extend the payment arrangements and agree

on new loan conditions. Once the terms have been renegotiated, any impairment is measured using the original EIR as calculated before the modification of terms and the loan is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loan continues to be subject to impairment assessment, calculated using the loan’s original EIR.

(g) Impairment of non-financial assets

The Group and the Company assess at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment assessment for an asset is required, the Group and the Company makes an estimate of the asset’s recoverable amount.

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(g) Impairment of non-financial assets (cont’d.) An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (“CGU”) fair value less costs

to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGU).

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis.

Impairment losses are recognised in profit or loss except for assets that are previously revalued where the revaluation was taken to other comprehensive income. In this case the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation.

An assessment is made at each reporting date to determine whether there is indication that previously recognised impairment losses no longer exist or have decreased. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine that asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Such reversal is recognised in profit or loss unless the asset is measured at revalued amount, in which case the reversal is treated as a revaluation increase. Impairment loss on goodwill is not reversed in a subsequent period.

(h) Cash and cash equivalents Cash and cash equivalents as stated in the statements of cash flows comprise cash and short-term funds and

deposits and placements with financial institutions that are readily convertible into cash with insignificant risk of changes in value.

(i) Provisions

Provisions are recognised when the Group and the Company have a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance cost.

(j) Financial liabilities

Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability.

Financial liabilities, are recognised in the statements of financial position when, and only when, the Group and the Company become a party to the contractual provisions of the financial instrument. Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.


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(j) Financial liabilities (cont’d.)

(i) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held-for-trading and financial

liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities held-for-trading include derivative financial instruments entered into by the Group and the Company that do not meet the hedge accounting criteria. The accounting policy for derivative financial instruments is disclosed in Note 3.4(o).

(ii) Other financial liabilities

The Group’s and the Company’s other financial liabilities include deposits from customers, deposits and placements of banks and other financial institutions and balances due to clients and brokers.

Deposits from customers, deposits and placements of banks and other financial institutions are initially recognised at placement values, which represent the fair value plus directly attributable transaction costs, and subsequently measured at amortised cost using the EIR.

Balances due to clients and brokers represent amounts payable in respect of outstanding contracts entered into on behalf of these clients where settlements have yet to be made, which represent the initial fair value plus directly attributable transaction costs, and subsequently measured at amortised cost using the EIR. The credit terms for trade settlements are based on the agreements entered into between the Group and its clients and are in accordance with the Rules of Bursa Malaysia Securities Berhad (“Bursa Rules”).

Other financial liabilities are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at cost using the EIR. Gains or losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process.

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss.

(k) Property, plant and equipment and depreciation

All items of property, plant and equipment are initially recorded at cost. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the Company and the cost of the item can be measured reliably. The carrying amount of the replaced asset is derecognised. All other repairs and maintenance are recognised in profit or loss during the financial period in which they are incurred.

When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

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(k) Property, plant and equipment and depreciation (cont’d.)

Subsequent to initial recognition, property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. The policy for the recognition and measurement of impairment losses is in accordance with Note 3.4(g).

Capital work-in-progress is not depreciated as these assets are not available for use. Depreciation of other property, plant and equipment is provided for on a straight-line-basis to write off the cost of each asset to its residual value over the estimated useful life, at the following annual rates:

Building 2% Motor vehicles 16% to 25% Computer equipment 14% to 33.33% Office equipment 10% to 33.33% Furniture and fittings 10% to 20% Research library 20% Renovations 10% to 20% The residual values, useful life and depreciation method are reviewed at each reporting date to ensure that the

amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any, and the net carrying amount is recognised in profit or loss.

(l) Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date, whether fullfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an agreement.

(i) Finance leases Assets acquired by way of hire purchase or finance leases are stated at an amount equal to the lower of

their fair values and the present value of the minimum lease payments at the inception of the leases, less accumulated depreciation and impairment losses. The corresponding liability is included in the statements of financial position as borrowings. In calculating the present value of the minimum lease payments, the discount factor used is the interest rate implicit in the lease, when it is practicable to determine; otherwise, the Group’s and the Company’s incremental borrowing rate is used.

Lease payments are apportioned between the finance costs and the reduction of the outstanding liability. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are recognised as an expense over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

The depreciation policy for leased assets is in accordance with that for depreciable property, plant and equipment as described in Note 3.4(k).


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(l) Leases (cont’d.)

(ii) Operating leases

Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the term of the relevant lease.

(m) Share capital

Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared.

The transaction costs of an equity transaction are accounted for as a deduction from equity, net of tax. Equity transaction costs comprise only those incremental external costs directly attributable to the equity transaction which would otherwise have been avoided.

(n) Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due.

Financial guarantee contracts are recognised initially as a liability at fair value, net of transaction costs. Subsequent to initial recognition, financial guarantee contracts are recognised as income in profit or loss over the period of the guarantee. If the debtor fails to make payment relating to a financial guarantee contract when it is due and the Company, as the issuer, is required to reimburse the holder for the associated loss, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount initially recognised less cumulative amortisation.

(o) Derivative financial instruments Derivative financial instruments are initially recognised at fair value on the date on which derivative contracts are

entered into and are subsequently remeasured at their fair values. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. Derivative financial instruments are presented separately in the statements of financial position as assets (positive changes in fair values) and liabilities (negative changes in fair values). Any gains or losses arising from changes in the fair value of the derivatives are recognised immediately in profit or loss.

(p) Income recognition

(i) Interest, financing and profit income

Interest income is recognised in profit or loss for all interest or profit bearing assets on an effective yield basis.

Interest income includes the amortisation of premium or accretion of discount.

Once a loan has been written down as a result of an impairment loss, interest income is thereafter recognised using the rate of interest used to discount the future cash flows for the purpose of measuring impairment loss.

K & N KENANGA


2015

FINANCIALS




(p) Income recognition (cont’d.)

(ii) Fee and other income

Brokerage fees are recognised on contract date upon execution of trade on behalf of clients computed based on a pre-determined percentage of the contract value.

Loan arrangement fees and commissions, management and participation fees, underwriting fees and placement fees are recognised as income when all conditions precedent are fulfilled.

Custodian fees, guarantee fees and fund management fees are recognised as income based on time apportionment basis.

Corporate advisory fees are recognised as income on the completion of each stage of the assignment.

Rollover fees are recognised upon the rollover of specific contracts under share margin accounts financing.

Gain/(loss) on disposal of investments is recognised upon the transfer of risks and rewards of ownership.

(iii) Islamic banking income Income from islamic banking scheme is recognised on an accrual basis in accordance with Shariah

principles.

(iv) Other income

Dividend income is recognised when the right to receive the payment is established.

All other income items are recognised on an accrual basis.

(q) Interest, financing and profit expense

Interest expense on deposits from customers, placements of financial institutions and borrowings is recognised using EIR.

(r) Foreign currency

(i) Foreign currency transactions

Transactions in foreign currencies are measured in the respective functional currencies of the Group and the Company and recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the reporting date. Non-monetary items denominated in foreign currencies that are measured at historical cost are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items denominated in foreign currencies measured at fair value are translated using the exchange rates at the date when the fair value was determined.


FINANCIALS




(r) Foreign currency (cont’d.)

(i) Foreign currency transactions (cont’d.)

Exchange differences arising on the settlement of monetary items or on translating monetary items at the reporting date are recognised in profit or loss except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to profit or loss of the Group on disposal of the foreign operation.

Exchange differences arising on the translation of non-monetary items carried at fair value are included in profit or loss for the period except for the differences arising on the translation of non-monetary items in respect of which gains and losses are recognised directly in equity. Exchange differences arising from such non-monetary items are also recognised directly in equity.

(ii) Foreign operations

The assets and liabilities of foreign operations are translated into RM at the rates of exchange ruling at the reporting date and income and expenses are translated at exchange rates at the dates of the transactions. The exchange differences arising on the translation are taken directly to other comprehensive income. On disposal of a foreign operation, the cumulative amount recognised in other comprehensive income and accumulated in equity under foreign currency translation reserve relating to that particular foreign operation is recognised in profit or loss.

Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated at the closing rate at the reporting date.

(s) Income taxes

(i) Current tax

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity.

(ii) Zakat

This represent business zakat payable by the Group in compliance with Shariah principles and as approved by the investment banking subsidiary’s Shariah Committee.

K & N KENANGA


2015

FINANCIALS




(s) Income taxes (cont’d.)

(iii) Deferred tax

Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all temporary differences, except:

- where the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

- in respect of taxable temporary differences associated with investments in subsidiaries, and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

- where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

- in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the financial year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.


FINANCIALS




(t) Employee benefits

(i) Short-term benefits

Wages, salaries, bonuses and social security contributions are recognised as an expense in the financial year in which the associated services are rendered by employees of the Group and the Company. Short-term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur.

(ii) Defined contribution plans

As required by law, companies in Malaysia make contributions to the Employees Provident Fund (“EPF”). Such contributions are recognised as an expense in profit or loss as incurred. Once the contributions have been paid, the Group has no further payment obligations.

(u) Segment information

For management purposes, the Group is organised into operating segments based on their products and services which are independently managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers report directly to the management of the Company who regularly review the segment results in order to allocate resources to the segments and to assess the segment performance. Additional disclosures on each of these segments are shown in Note 46, including the factors used to identify the reportable segments and the measurement basis of segment information.

(v) Contingent liabilities and contingent assets

The Group and the Company do not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group and the Company or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably.

A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group and the Company. The Group and the Company do not recognise any contingent asset but discloses its existence where inflows of economic benefits are probable, but not virtually certain.

(w) Fiduciary assets

The Group provides trust and other financing services that result in the holding or investing of assets on behalf of its clients. Assets held in a fiduciary capacity are not recognised as assets of the Group.

K & N KENANGA


2015

FINANCIALS


4 . S I G N I F I C A N T A C C O U N T I N G E S T I M A T E S A N D J U D G M E N T S

The preparation of financial statements in accordance with MFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of revenues, expenses, assets and liabilities, the accompanying disclosures and the disclosures of contingent liabilities. Judgments, estimates and assumptions are continually evaluated and are based on past experience, reasonable expectations of future events and other factors. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

In the process of applying the Group’s accounting policies, management has made the following estimates and judgments which have the most significant effect on the amounts recognised in the financial statements.

(i) The Group and the Company determine whether goodwill and other intangible assets are impaired at least on an annual basis. This requires an estimation of the value-in-use of the CGU to which goodwill and other intangible assets are allocated. Estimating a value-in-use amount requires management to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate the present value of those cash flows. More detailed disclosures on the assessment of impairment of goodwill and other intangible assets are disclosed in Note 18.

(ii) The fair value of financial assets held-for-trading (Note 6), financial investments AFS (Note 7), derivative financial assets (Note 9) and derivative financial liabilities (Note 24) are derived from market bid price. However, if the financial instruments are not traded in an active market, fair value may be established by using a valuation technique which includes but is not limited to using recent arm’s length market transactions between knowledgeable, willing parties, and reference to the current fair value of another instrument that is substantially the same. The Group and the Company use acceptable valuation technique which involves making assumptions based on market conditions and other factors as of the reporting date.

(iii) The Group and the Company assess at each reporting date whether there is any objective evidence that loans, advances and financing are impaired. To determine whether there is objective evidence of impairment, the Group and the Company consider factors such as those disclosed in Note 3.4(f). Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on available information obtained from the debtors, market, and management’s judgment. Among the factors considered are the underlying assumptions used in the projected cash flows which include net realisable value of the underlying collaterals, capability and financial capacity to generate sufficient cash flows to service debt obligations.

The carrying value of the Group’s and the Company’s loans, advances and financing at the reporting date is disclosed in Note 10.

(iv) The Group and the Company estimate the useful lives of property, plant and equipment and software based on factors such as the expected level of usage due to physical wear and tear, future technological developments and legal or other limits on the use of the relevant assets. Future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of property, plant and equipment, and software would increase the recorded depreciation and decrease their carrying value. The total carrying amounts of property, plant and equipment, and software are disclosed in Notes 16 and 18 respectively.

(v) Deferred tax assets are recognised for all unutilised tax losses and unabsorbed capital allowances to the extent that it is probable that taxable profit will be available against which the tax losses and unabsorbed capital allowances can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. As at financial year end, the total carrying value of unutilised tax losses and unabsorbed capital allowances are disclosed in Note 17.


FINANCIALS


4 . S I G N I F I C A N T A C C O U N T I N G E S T I M A T E S A N D J U D G M E N T S ( C O N T ’ D . )

(vi) The Group and the Company assess whether there is any indication that investments in subsidiaries and investments in associates may be impaired at each reporting date.

If indicators are present, these assets are subject to impairment review. The impairment review comprises comparison of the carrying amount of the investment and the investment’s estimated recoverable amount.

Judgments made by management in the process of applying the Group’s and the Company’s accounting policies in respect of investments in subsidiaries and investment in associates are as follows:

- The Company determines whether its investments are impaired following certain indications of impairment such as, amongst others, significant changes with adverse effects on the investment and deteriorating financial performance of the investment due to observed changes and fundamentals.

- Depending on their nature and the industries in which the investments relate to, judgments are made by management to select suitable methods of valuation such as, amongst others, discounted cash flows and realisable net asset value.

Once a suitable method of valuation is selected, management makes certain assumptions concerning the future to estimate the recoverable amount of the investment. These assumptions and other key sources of estimation uncertainty at the reporting date may have a significant risk of causing material adjustment to the carrying amounts of the investments within the next financial year. Depending on the specific individual investment, assumptions made by management may include, amongst others, assumptions on expected future cash flows, revenue growth, discount rate used for purposes of discounting future cash flows which incorporates the relevant risks, and expected future outcome of certain past events.

Investments in subsidiaries and associates of the Group are disclosed in Notes 14 and 15 respectively.

5 . C A S H A N D B A N K B A L A N C E S

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Cash and balances with banks and other financial institutions 284,973 170,267 1,362 1,629

Money at call and deposit placements maturing:- within one month 968,120 701,289 1,985 8,131 - after one month 114,833 147,573 - -

1,367,926 1,019,129 3,347 9,760

Included in cash and bank balances are:Cash and cash equivalents 958,803 571,674 3,347 9,760 Monies held in trust on behalf of dealer’s

representatives and segregated funds for customers 409,123 447,455 - -

1,367,926 1,019,129 3,347 9,760

Monies held in trust on behalf of clients of RM597,665,000 (2014: RM554,123,000) in respect of the stockbroking business are excluded from the cash and bank balances of the Group in accordance with FRSIC Consensus 18.

K & N KENANGA


2015

FINANCIALS


6 . F I N A N C I A L A S S E T S H E L D - F O R - T R A D I N G

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

At fair value

Money market instruments:Malaysian Government Investment Certificates 57,373 - - -

Quoted securities:Shares and unit trust funds in Malaysia 231,311 72,635 19,831 16,781

Unquoted securities:Islamic Corporate Bonds 49,889 - - -

338,573 72,635 19,831 16,781

7 . F I N A N C I A L I N V E S T M E N T S A V A I L A B L E - F O R - S A L E

Group

2015 RM’000

2014 RM’000

At fair value

Money market instruments:Malaysian Government Securities 131,390 198,326 Malaysian Government Investment Certificates 244,556 282,470 Bank Negara Malaysia Bills and Notes 39,706 297,240 Sukuk Perumahan Kerajaan 9,996 9,902 Negotiable Instruments of Deposits - 100,000

425,648 887,938

Unquoted securities:Shares in Malaysia 490 490

Unquoted private debt securities:Islamic Corporate Bonds 120,050 587,702 Islamic Corporate Bills 24,878 - Corporate Bonds 653,717 233,786 Corporate Bills 24,878 -

823,523 821,488

1,249,661 1,709,916


FINANCIALS


7 . F I N A N C I A L I N V E S T M E N T S A V A I L A B L E - F O R - S A L E ( C O N T ’ D . )

Included in financial investments available-for-sale are financial assets sold under repurchase agreements as follows:

Group

2015 RM’000

2014 RM’000

Malaysian Government Investment Certificates (Note 21) 95,310 - 8 . F I N A N C I A L I N V E S T M E N T S H E L D - T O - M A T U R I T Y

Group

2015 RM’000

2014 RM’000

At amortised cost

Unquoted private debt securities:Corporate Bonds 35,002 5,002 Islamic Corporate Bonds 5,001 5,003

40,003 10,005 9 . D E R I V A T I V E F I N A N C I A L A S S E T S

Group

2015 RM’000

2014 RM’000

At fair valueDual currency investment – Options 2 44 Equity related contracts – Options 2,908 -

2,910 44

Contract/Notional amountDual currency investment – Options 1,588 4,310 Equity related contracts – Options 13,762 2,825

15,350 7,135

K & N KENANGA


2015

FINANCIALS


1 0 . L O A N S , A D V A N C E S A N D F I N A N C I N G

Group

2015 RM’000

2014 RM’000

Term loans 424,483 398,621 Share margin financing 1,399,394 1,412,119 Others 107,725 81,919 Gross loans, advances and financing 1,931,602 1,892,659 Allowance for impairment on loans, advances and financing- Individual allowance (1,395) (1,725)- Collective allowance (143) (166)

(1,538) (1,891)Net loans, advances and financing 1,930,064 1,890,768

(i) Gross loans, advances and financing analysed by type of customer are as follows:

Domestic business enterprises – others 896,820 780,359 Individuals 1,002,660 1,102,546 Foreign enterprises 32,122 9,754

1,931,602 1,892,659

(ii) Gross loans, advances and financing analysed by geographical distribution are as follows:

In Malaysia 1,898,570 1,881,419 Outside Malaysia 33,032 11,240

1,931,602 1,892,659

(iii) Gross loans, advances and financing analysed by interest rate/profit rate sensitivity are as follows:

Fixed rate - Other fixed rate loans 1,519,169 1,764,309 Variable rate - Cost plus 317,198 78,024 - Other variable rates 95,235 50,326

1,931,602 1,892,659

(iv) Gross loans, advances and financing analysed by economic purpose as follows:

Purchase of securities 1,598,275 1,613,040 Working capital 98,490 63,640 Others 234,837 215,979

1,931,602 1,892,659


FINANCIALS


1 0 . L O A N S , A D V A N C E S A N D F I N A N C I N G ( C O N T ’ D . )

Group

2015 RM’000

2014 RM’000

(v) Gross loans, advances and financing analysed by residual contractual maturity are as follows:

Within one year 1,643,632 1,637,833 More than one year 287,970 254,826

1,931,602 1,892,659

(vi) Movements in impaired loans, advances and financing are as follows:

At beginning of the financial year 2,790 2,785 Impaired during the financial year 6,157 258 Amount recovered (1,005) (26) Amount written off - (227) At end of the financial year 7,942 2,790 Individual allowance (1,395) (1,725) Net impaired loans, advances and financing 6,547 1,065

Net impaired loans as % of gross loans, advances and financing less individual allowance 0.34% 0.06%

(vii) Impaired loans, advances and financing analysed by geographical distribution are as follows:

In Malaysia 7,942 2,790

(viii) Impaired loans, advances and financing analysed by economic purpose are as follows:

Working capital 5,986 - Purchase of securities 1,956 2,790

7,942 2,790

K & N KENANGA


2015

FINANCIALS


1 0 . L O A N S , A D V A N C E S A N D F I N A N C I N G ( C O N T ’ D . )

Group

2015 RM’000

2014 RM’000

(ix) Movements in allowances for loans, advances and financing are as follows:

Individual allowance At beginning of the financial year 1,725 1,692 Allowance made (Note 34) 259 291 Allowance written back (Note 34) (589) (34) Amount of allowance set off against gross loans - (224) At end of the financial year 1,395 1,725

Collective allowance At beginning of the financial year 166 597 Allowance written back (Note 34) (23) (431) At end of the financial year 143 166

Collective allowance as % of gross loans, advances and financing less individual allowance 0.01% 0.01%

1 1 . B A L A N C E S D U E F R O M C L I E N T S A N D B R O K E R S

Group

2015 RM’000

2014 RM’000

Balances due from clients and brokers 474,558 403,119 Less: allowance for impairment (17,231) (24,815)

457,327 378,304

Movements of allowance for impairment

At beginning of the financial year 24,815 10,731 Allowance made for the financial year (Note 35) 7,763 18,586 Allowance for impairment written back (Note 35) (6,574) (4,408)Allowances for impairment losses written off against balances due

from clients and brokers (8,773) (94)At end of the financial year 17,231 24,815

Balances due from clients and brokers represent the amounts receivable in respect of outstanding contracts, contra losses and interests.

The credit terms in respect of balances due from clients and brokers are based on the agreements entered into between the investment banking subsidiary and its clients and are in accordance with the Bursa Rules.


FINANCIALS


1 2 . O T H E R A S S E T S

Group Company

Note 2015

RM’000 2014

RM’000 2015

RM’000 2014

RM’000

Assets segregated for customers (a) 110,635 51,884 - - Interest/income receivable 15,181 14,681 - - Amounts due from subsidiary

companies (b) - - 65,948 91,154 Amounts due from related parties 15 - - - Prepayments and deposits 18,119 27,734 1,115 1,174 Other debtors (c) 86,682 33,190 663 96

230,632 127,489 67,726 92,424 Allowance for impairment (4,666) (4,713) - -

225,966 122,776 67,726 92,424

Movements of allowance for impairment

Group

2015 RM’000

2014 RM’000

At beginning of the financial year 4,713 4,186 Allowance made for the financial year (Note 35) 5,320 4,851 Allowance for impairment written back (Note 35) (4,122) (3,964)Allowances for impairment losses written off against other assets (1,245) (360)At end of the financial year 4,666 4,713

(a) Assets segregated for customers

This represents deposits and fund contribution paid by a subsidiary to Bursa Malaysia Derivatives Clearing Berhad.

(b) Amounts due from subsidiary companies

An amount of RM63,000,000 (2014: RM63,000,000) due from a subsidiary company, Kenanga Capital Sdn Bhd, comprise advances granted to the subsidiary which are unsecured, bears interest of 5.5% to 5.55% (2014: 5.5% to 5.55%) per annum and is repayable on demand.

The other balances comprise payments of expenses made on the subsidiary companies’ behalf and they are unsecured, non-interest bearing and repayable on demand.

(c) Other debtors

Included in other debtors are receivables from corporate advisory billings which are non-interest bearing and generally on 90 days (2014: 90 days) terms. They are recognised at their original invoice amounts which represent their fair values on initial recognition.

K & N KENANGA


2015

FINANCIALS


1 3 . S T A T U T O R Y D E P O S I T W I T H B N M

The non-interest bearing statutory deposit is maintained by the investment banking subsidiary with BNM in compliance with Section 26(2)(c) of the Central Bank of Malaysia Act 2009. The amount is determined as a set percentage of net eligible liabilities.

1 4 . I N V E S T M E N T S I N S U B S I D I A R I E S

Company

2015 RM’000

2014 RM’000

Unquoted shares, at cost At beginning/end of the financial year 763,737 763,737

Details of the subsidiary companies are as follows:

Name Principal activities Effective equity interest Non-controlling interest

2015 %

2014 %

2015 %

2014 %

Local subsidiary companies


Investment banking business, provision of stockbroking and related financial services

100 100 - -

Kenanga Capital Sdn Bhd

Licensed money lender

100 100 - -

Kenanga Management & Services Sdn Bhd

Provision of car park management services

100 100 - -

Kenanga Private Equity Sdn Bhd

Dormant 100 100 - -

SSSB Management Services Sdn Bhd

Dormant 100 100 - -

Kenanga Business Access Sdn Bhd

Dissolved - 100 - -

PSSB Corporate Services Sdn Bhd

Dissolved - 100 - -


FINANCIALS


1 4 . I N V E S T M E N T S I N S U B S I D I A R I E S ( C O N T ’ D . )


2015 %

2014 %

2015 %

2014 %

The subsidiary companies of Kenanga Investment Bank Berhad are:

Kenanga Nominees (Tempatan) Sdn Bhd

Provision of nominee services

100 100 - -

Kenanga Nominees (Asing) Sdn Bhd

Provision of nominee services

100 100 - -

Kenanga Deutsche Futures Sdn Bhd (“KDF”)

Futures broker 73 73 27 27

Kenanga Investors Berhad

Promotion and management of collective investment schemes and management of investment funds

100 100 - -

ECML Berhad Dormant 100 100 - -

ECML Nominees (Tempatan) Sdn Bhd

Dormant 100 100 - -

ECML Nominees (Asing) Sdn Bhd

Dormant 100 100 - -

Avenue Kestrel Sdn Bhd

Dormant 100 100 - -

K & N KENANGA


2015

FINANCIALS




2015 %

2014 %

2015 %

2014 %

Overseas subsidiary company

Kenanga Singapore Pte. Ltd. *

Dormant 100 100 - -

The subsidiary companies of Kenanga Investors Berhad are:

Kenanga Islamic Investors Berhad

Managing islamic collective investment schemes and islamic investment funds

100 100 - -

KUT Nominees (Tempatan) Sdn Bhd

Dormant 100 100 - -

KUT Nominees (Asing) Sdn Bhd

Dormant 100 100 - -

Kenanga Funds Berhad Dormant 100 100 - -

The subsidiary companies of Kenanga Capital Sdn Bhd are:

Kenanga Capital Islamic Sdn Bhd

Islamic factoring and leasing

100 100 - -

* Audited by an affiliate of Ernst & Young


FINANCIALS



(a) Summarised financial statements

The summarised financial information of KDF which has non-controlling interests that are material to the Group is set out below. The summarised financial information presented below is the amount before inter-company elimination.

(i) Non-controlling interests (“NCI”) in KDF

The Group’s subsidiary that have material NCI are as follows:

KDF

2015 RM’000

2014 RM’000

NCI percentage of ownership interest and voting interest 27% 27%

Carrying amount of NCI 8,592 7,775 Profit allocated to NCI 1,157 817

9,749 8,592

Non-current assets 2,070 3,476 Current assets 598,190 463,322 Total assets 600,260 466,798

Current liabilities 546,154 411,955 Non-current liabilities 18,000 23,022 Total liabilities 564,154 434,977 Net assets 36,106 31,821

Equity attributable to equity holders of the Company 26,357 23,229

NCI 9,749 8,592

(ii) Summarised statements of profit or loss and other comprehensive income

KDF

2015 RM’000

2014 RM’000

Revenue 24,382 19,757 Profit for the financial year 4,285 3,021 Attributable to: Equity holders of the Company 3,128 2,204 NCI 1,157 817 Dividend paid to NCI - -

K & N KENANGA


2015

FINANCIALS



(a) Summarised financial statements (cont’d.)

(iii) Summarised cash flows statements

KDF

2015 RM’000

2014 RM’000

Operating activities 3,634 9,288 Investing activities (41) 143 Financing activities (6,110) 6,678 Net (decrease)/increase in cash and cash equivalents (2,517) 16,109

1 5 . I N V E S T M E N T S I N A S S O C I A T E S

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Unquoted shares at cost 88,644 88,644 20,210 20,210 Share of post acquisition losses (16,981) (18,527) - - Share of changes in other comprehensive income (6,768) 1,388 - - Dividends received (100) (100) - -

64,795 71,405 20,210 20,210 Foreign exchange differences 21,653 7,427 - -

86,448 78,832 20,210 20,210

Less: Accumulated impairment losses (19,610) (19,610) (19,023) (19,023)Carrying amount 66,838 59,222 1,187 1,187

Represented by:Share of net tangible assets 66,838 59,222

The Group carried out impairment assessments on its associates in accordance with the accounting policy stated in

Note 3.4(g). The recoverable amount is based on the Group’s share of net tangible assets of Wasatah Capital. Based on management’s assessment, the Group has made adequate provision for impairment loss on the investment as at the current financial year end.


FINANCIALS


1 5 . I N V E S T M E N T S I N A S S O C I A T E S ( C O N T ’ D . )

(a) Details of the associates are as follows:

Name Place of incorporation Principal activities Effective equity interest

2015%

2014%

Kenanga Investment Corporation Ltd *

Sri Lanka Investment banking related activities

45.0 45.0

AL Wasatah AL Maliah Company (“Wasatah Capital”) *

Kingdom of Saudi Arabia

Dealing, advisory and fund management business

29.6 29.6

Kenanga Vietnam Securities Joint Stock Corporation ^#

Vietnam Securities, brokerage depository and advisory business

49.0 49.0

* Audited by firms other than Ernst & Young^ Equity accounted for using unaudited management accounts# Audited by member firms of Ernst & Young Global

(b) Summarised financial information Summarised financial information in respect of the Group’s material associate is set out below. The summarised financial

information represents the amounts in the MFRS financial statements of the associate and not the Group’s share of those amounts.

(i) Summarised statement of financial position

Wasatah Capital

2015 RM’000

2014 RM’000

Current assets 58,829 36,751 Non-current assets 165,119 164,553 Total assets 223,948 201,304

Current liabilities * 2,281 5,428

Net assets 221,667 195,876

* The current liabilities is net of zakat provision for the financial year as the zakat are not shared by non-Saudi shareholders in accordance with the regulations of zakat department of Zakat & Income Tax as applicable in the Kingdom of Saudi Arabia. Therefore, the provision is not included in the net assets for the purpose of showing the Group’s share of net assets in Wasatah Capital.

K & N KENANGA


2015

FINANCIALS


1 5 . I N V E S T M E N T S I N A S S O C I A T E S ( C O N T ’ D . )

(b) Summarised financial information (cont’d.)

(ii) Summarised statements of profit or loss and other comprehensive income

Wasatah Capital

2015 RM’000

2014 RM’000

Revenue 29,011 35,126 Profit for the financial year 5,673 8,279 Other comprehensive income (27,556) (12,939)Total comprehensive income (21,883) (4,660)

(iii) Reconciliation of the summarised financial information presented above to the carrying amount of the Group’s interests in associate

Wasatah Capital

2015 RM’000

2014 RM’000

Net assets at 1 January 195,876 189,982 Profit for the financial year 5,673 8,279 Other comprehensive income (27,556) (12,939)Movement of foreign exchange reserve 47,674 10,554 Net assets at 31 December 221,667 195,876

Interest in associate 29.60% 29.60%

Carrying value of Group’s interests in associate 65,613 57,979

(c) Aggregate information of associates that are not individually material

2015 RM’000

2014 RM’000

The Group’s share of results in associates, representing share of total comprehensive loss (133) (16)


FINANCIALS


16

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K & N KENANGA


2015

FINANCIALS


16

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9


FINANCIALS


1 6 . P R O P E R T Y, P L A N T A N D E Q U I P M E N T ( C O N T ’ D . )

Company

Furniture and

fittings RM’000

Renovations RM’000

Motor vehicles RM’000

Capitalwork-in-

progress RM’000

Office equipment

RM’000 Total

RM’000

At 31 December 2015

CostAt 1 January 2015 218 954 1,319 158 1,348 3,997 Additions 533 314 365 - 124 1,336 Transfer - 68 - (158) 90 - Disposals/write-off (40) - - - (616) (656)At 31 December 2015 711 1,336 1,684 - 946 4,677

Accumulated depreciationAt 1 January 2015 97 257 940 - 725 2,019 Depreciation charge for the

financial year (Note 33) 62 127 218 - 109 516 Disposals/write-off (1) - - - (182) (183)At 31 December 2015 158 384 1,158 - 652 2,352

Net carrying amountAt 31 December 2015 553 952 526 - 294 2,325

At 31 December 2014

CostAt 1 January 2014 151 644 1,319 220 827 3,161 Additions 67 310 - 68 395 840 Transfer - - - (130) 130 - Disposals/write-off - - - - (4) (4)At 31 December 2014 218 954 1,319 158 1,348 3,997

Accumulated depreciationAt 1 January 2014 71 172 765 - 545 1,553 Depreciation charge for the

financial year (Note 33) 26 85 175 - 180 466 At 31 December 2014 97 257 940 - 725 2,019

Net carrying amountAt 31 December 2014 121 697 379 158 623 1,978

K & N KENANGA


2015

FINANCIALS


1 7 . D E F E R R E D T A X A T I O N

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

At beginning of financial year 6,225 13,542 976 728 Recognised in profit or loss (Note 40) 2,984 (2,458) (338) 248 Recognised in other comprehensive income 816 (4,859) - - At end of financial year 10,025 6,225 638 976

Presented after appropriate offsetting as follows:Deferred tax assets 10,025 6,247 638 976Deferred tax liabilities - (22) - -

10,025 6,225 638 976 The components and movements of deferred tax liabilities and assets during the financial year prior to offsetting are as follows:

Deferred tax liabilities of the Group:

Available-for-sale reserve

RM’000

Excess of capital allowances over

depreciation RM’000

Total RM’000

At 1 January 2015 3,372 (5,248) (1,876)Recognised in profit or loss - 3,449 3,449 Recognised in other comprehensive income 816 - 816 At 31 December 2015 4,188 (1,799) 2,389

At 1 January 2014 8,231 (6,910) 1,321 Recognised in profit or loss - 1,662 1,662 Recognised in other comprehensive income (4,859) - (4,859)At 31 December 2014 3,372 (5,248) (1,876)

Deferred tax assets of the Group:

Impairment allowance and

provisions RM’000

Unabsorbed capital allowances

and tax losses RM’000

Total RM’000

At 1 January 2015 7,465 636 8,101 Recognised in profit or loss (22) (443) (465)At 31 December 2015 7,443 193 7,636

At 1 January 2014 6,715 5,506 12,221 Recognised in profit or loss 750 (4,870) (4,120)At 31 December 2014 7,465 636 8,101


FINANCIALS


1 7 . D E F E R R E D T A X A T I O N ( C O N T ’ D . )

Deferred tax liabilities of the Company:

Excess of capital

allowances over depreciation

RM’000 Total

RM’000

At 1 January 2015 (93) (93)Recognised in profit or loss 1 1 At 31 December 2015 (92) (92)

At 1 January 2014 (107) (107)Recognised in profit or loss 14 14 At 31 December 2014 (93) (93)

Deferred tax assets of the Company:

Provisions RM’000

Total RM’000

At 1 January 2015 1,069 1,069 Recognised in profit or loss (339) (339)At 31 December 2015 730 730

At 1 January 2014 835 835 Recognised in profit or loss 234 234 At 31 December 2014 1,069 1,069

Deferred tax assets have not been recognised in respect of the following items:

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Unutilised tax losses carried forward 18,389 17,604 8,617 11,592 Unutilised capital allowances carried forward 652 629 - 81

19,041 18,233 8,617 11,673

K & N KENANGA


2015

FINANCIALS


18

. IN

TA

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At 3

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208

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At 3

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2014

208

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5

2,50

0 1

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4

,169

4

16

267

,308


FINANCIALS


1 8 . I N T A N G I B L E A S S E T S ( C O N T ’ D . )

Company2015

RM’000 2014

RM’000

CostAt beginning/end of the financial year 363 363

Accumulated amortisationAt beginning/end of the financial year (363) (363)

Net carrying amountAt end of the financial year - -

(a) Impairment test on intangible assets

The intangible assets consist of:

Goodwill

Goodwill have been allocated to the following CGUs:

Group2015

RM’000 2014

RM’000

Stockbroking 147,459 147,459 Investment banking 37,101 37,101 Treasury 18,550 18,550 Investment management 5,644 5,644

208,754 208,754

Merchant banking licence

Merchant banking licence which is allocated to the investment banking subsidiary’s stockbroking, investment banking, and treasury CGUs represents contribution to BNM for a licence to carry on merchant banking business to transform the investment banking subsidiary from a Universal Broker into an Investment Bank.

Fund management contracts

Intangible asset relating to fund management contracts arising from the acquisition of one of the Group’s subsidiary operation, is allocated to the unit trust and asset management CGU.

K & N KENANGA


2015

FINANCIALS


1 8 . I N T A N G I B L E A S S E T S ( C O N T ’ D . )

(a) Impairment test on intangible assets (cont’d.)

Trading and clearing rights

The value of trading and clearing rights issued by Bursa Malaysia Derivatives Berhad (“BMDB”) is allocated to the futures broking CGU.

All of the above intangible assets have an indefinite useful life and an annual impairment review has been carried out on all the intangible assets with an indefinite useful life in accordance with MFRS 136: Impairment of Assets and MFRS 138: Intangible Assets.

Key assumptions used in value-in-use calculations

For annual impairment testing purposes, the recoverable amounts of the CGUs, which are reportable business segments, are determined based on their value-in-use. The value-in-use is computed by discounting the future cash flows of the unit, which is based on financial budget and projections approved by the Board.

The following describes key assumptions on which management has based its cash flow projections to undertake impairment testing of intangible assets:

(i) Cash flow projections and growth rates

Cash flow projections for the first to third years are based on the most recent three years financial budget and business plan approved by the Board, taking into account projected regulatory capital requirements. Cash flows for the fourth to fifth years are extrapolated using growth rates that do not exceed the long term average growth rate for the market in which the business operates. Cash flows beyond the fifth year are projected to remain constant and estimated as a terminal value by discounting future cash flows to present value.

(ii) Discount rates

The discount rate used is based on the business units’ pre-tax weighted average cost of capital plus an appropriate risk premium at the date of assessment at 8% (2014: 8%) per annum.

(b) Sensitivity to changes in assumptions

Management believes that a reasonably possible change in any of the above key assumptions would not cause the recoverable amounts of the intangible assets to be lower than carrying values of the CGUs.


FINANCIALS


1 9 . D E P O S I T S F R O M C U S T O M E R S

Group

2015 RM’000

2014 RM’000

Fixed term deposits 327,501 350,496 Short term money deposits 2,893,940 2,730,873 Negotiable instruments of deposit 7,624 11,242

3,229,065 3,092,611

(i) The maturity structure is as follows:Due within six months 3,213,115 3,081,830 Six months to one year 15,950 10,781

3,229,065 3,092,611

(ii) The deposits are sourced from the following types of customers:Government and statutory bodies 262,791 614,191 Individuals 77,320 45,855 Business enterprises 680,073 721,997 Non-bank financial institutions 2,208,881 1,695,568 Related parties - 15,000

3,229,065 3,092,611

2 0 . D E P O S I T S A N D P L A C E M E N T S O F B A N K S A N D O T H E R F I N A N C I A L I N S T I T U T I O N S

Group

2015 RM’000

2014 RM’000

Licensed banks 140,000 278,000 Licensed investment banks - 210,000 Licensed Islamic banks - 50,000 Other financial institutions 435,159 150,054

575,159 688,054

2 1 . O B L I G A T I O N S O N S E C U R I T I E S S O L D U N D E R R E P U R C H A S E A G R E E M E N T S

Group

2015 RM’000

2014 RM’000

Financial investments available-for-sale (Note 7) 95,310 -

K & N KENANGA


2015

FINANCIALS


2 2 . B A L A N C E S D U E T O C L I E N T S A N D B R O K E R S

Group

2015 RM’000

2014 RM’000

Balances due to clients and brokers 896,302 744,762

Balances due to clients and brokers represent amounts payable in respect of outstanding contracts entered into on behalf of these clients where settlements have yet to be made.

2 3 . O T H E R L I A B I L I T I E S

Group Company

Note 2015

RM’000 2014

RM’000 2015

RM’000 2014

RM’000

Hire purchase creditors (a) 28 67 - - Profit/interest payable 11,087 11,105 880 884 Retention for contra losses 602 1,090 - - Treasury trade payables 49,818 - - - Accruals and provision 51,599 72,259 4,664 3,253 Provision for commitments and

contingencies 3,063 1,813 - - Amount held in trust on behalf of:- Dealer’s representatives 64,204 68,629 - - Deposits and other creditors 56,531 17,909 1,540 3,080 Amount due to trustee 9,296 7,808 - - Amount due to subsidiaries (b) - - 115 26,550

246,228 180,680 7,199 33,767

(a) Hire purchase creditors

Group

2015 RM’000

2014 RM’000

Future minimum finance lease payments:Not later than 1 year 29 38 Later than 1 year and not later than 5 years - 32

29 70 Less: Future finance charges (1) (3)Present value of finance lease liabilities 28 67


FINANCIALS


2 3 . O T H E R L I A B I L I T I E S ( C O N T ’ D . )

(a) Hire purchase creditors (cont’d.)

Group

2015 RM’000

2014 RM’000

Analysis of present value of finance lease payments:Not later than 1 year 28 36 Later than 1 year and not later than 5 years - 31

28 67

Analysed as:Due within 12 months 28 36 Due after 12 months - 31

28 67

(b) The amount owing is unsecured, non-interest bearing and repayable on demand. 2 4 . D E R I V A T I V E F I N A N C I A L L I A B I L I T I E S

Group

2015 RM’000

2014 RM’000

At fair valueDual currency investment – Options 2 44 Equity related contracts – Options 72,276 7,193

72,278 7,237

Contract/Notional amountDual currency investment – Options 1,588 4,310 Equity related contracts – Options 1,042,190 112,668

1,043,778 116,978

The contractual or underlying notional amounts of derivative financial liabilities held at fair value through profit or loss reflect the value of transactions outstanding as at reporting date, and do not represent amounts at risk.

K & N KENANGA


2015

FINANCIALS


2 5 . B O R R O W I N G S

Group Company

Note 2015

RM’000 2014

RM’000 2015

RM’000 2014

RM’000

Short term borrowingsUnsecured:Revolving bank loans (a) 31,000 52,336 - - Medium term notes (b) 110,000 100,000 110,000 100,000

141,000 152,336 110,000 100,000

(a) The revolving bank loans bear interest of 1.65% to 2.00% over KLIBOR (2014: 1.65% to 2.00% over KLIBOR) plus cost of maintaining statutory reserve and liquidity requirements and is payable on maturity of the loans. The maximum tenure for the loans is 30 days.

The borrowings are secured by:

(i) corporate guarantees by the Company of RM165 million; and (ii) letter of subordination signed by the Company agreeing to subordinate the Company’s advances to licensed

commercial banks.

(b) On 13 August 2014, the Company established a RM200 million Commercial Paper/Medium Term Notes Programme (“CP/MTN Programme”) in nominal value of up to seven (7) years tenure. Pursuant to this, the Company may from time to time issue debt under the Programme subject to availability of funds from the market.

The outstanding MTN under this programme as at 31 December 2015 are as follows:

Issue Date Series RM’000 Rate Tenure

5 December 2014 002 50,000 4.90% p.a. 18 months8 May 2015 003 5,000 4.65% p.a. 367 days22 May 2015 004 5,000 4.65% p.a. 367 days29 June 2015 005 5,000 4.65% p.a. 366 days24 July 2015 006 5,000 4.65% p.a. 367 days26 August 2015 007 5,000 4.65% p.a. 366 days17 September 2015 008 35,000 4.60% p.a. 368 days

110,000


FINANCIALS


2 6 . S H A R E C A P I T A L

Group and Company

Number of Ordinary Shares of RM1 each Amount

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Authorised:At beginning/end of the financial year 1,500,000 1,500,000 1,500,000 1,500,000

Issued and fully paid:At beginning/end of the financial year 731,759 731,759 731,759 731,759

2 7 . R E S E R V E S

Group Company

Note 2015

RM’000 2014

RM’000 2015

RM’000 2014

RM’000

Non-distributable:Capital reserve (a) 22,152 22,152 (49,800) (49,800)Share premium 75 75 75 75Exchange reserve (b) 21,653 7,427 - - Available-for-sale reserve (c) (19,553) (8,276) - - Statutory reserve (d) 94,623 88,815 - - Regulatory reserve (e) 22,111 - - -

141,061 110,193 (49,725) (49,725)Distributable:(Accumulated loss)/Retained profits (f) (11,234) 12,630 68,423 73,286

129,827 122,823 18,698 23,561

The nature and purpose of each category of reserves are as follows:

(a) The capital reserve of the Group arose from the capitalisation of bonus issuance undertaken by certain subsidiaries in previous years. The capital reserve of the Company arose from the issuance of new ordinary shares at an issue price of RM0.585 each arising from the acquisition of ECML Berhad by the investment banking subsidiary.

(b) The exchange reserve represents foreign exchange differences arising from the translation of the financial statements of the associated companies.

(c) Available-for-sale reserve is in respect of unrealised fair value gains and losses on financial investments available-for-sale, net of tax.

K & N KENANGA


2015

FINANCIALS


2 7 . R E S E R V E S ( C O N T ’ D . )

The nature and purpose of each category of reserves are as follows: (cont’d.)

(d) The statutory reserve is maintained by the investment banking subsidiary in compliance with the requirements of BNM Guidelines on Capital Funds, pursuant to Section 47(2)(f) of the Financial Services Act 2013 and is not distributable as cash dividends.

(e) Regulatory reserve is maintained in addition to the collective impairment allowance that has been accessed and recognised in accordance with MFRS; in compliance with BNM requirements.

(f) The Company is able to distribute any future dividends out of its entire retained earnings under the single-tier tax system.

2 8 . T R E A S U R Y S H A R E S The shareholders of the Company, via an ordinary resolution passed at the Annual General Meeting held on 28 May 2015, had

approved the Company’s plan to purchase its own shares up to 10% of existing total issued and paid-up share capital.

During the financial year, the Company bought back 9,212,500 (2014: Nil) ordinary shares of RM1.00 each, at an average price of RM0.7170 from the open market. The share buy-back transactions were financed by internally generated funds. As at 31 December 2015, the total number of shares bought was 9,212,500 and were held as treasury shares in accordance with the provisions of Section 67A of the Companies Act, 1965. Accordingly the adjusted issued and paid-up share capital of the Company (excluding 9,212,500 treasury shares as at 31 December 2015 was RM725,155,552 (2014: RM731,759,499) comprising 722,546,999 (2014: 731,759,499) shares.

2 9 . O P E R A T I N G R E V E N U E Operating revenue of the Group and the Company comprises the following:

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Dividend income 3,801 2,431 1,593 979 Gross brokerage 185,348 220,619 - - Fund management fees 30,609 47,985 - - Commission income 17,421 14,030 - - Advisory fees 10,386 15,106 - - Interest income 253,745 230,393 3,490 1,498 Management services 1,039 805 30,776 27,877 Foreign exchange gain 4,388 5,431 3 - Placement fee 6,635 6,222 - - Underwriting fees 3,258 2,070 - - Processing fees on loans and advances 5,591 7,701 - - Unrealised gain on revaluation of

financial assets held-for-trading 17,940 6,176 1,457 59 Other fee income 11,882 10,909 - - Gain on disposal of securities 10,936 25,283 - - Guarantee fees 9 - 841 947

562,988 595,161 38,160 31,360


FINANCIALS


3 0 . I N T E R E S T I N C O M E

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Loans, advances and financing- Interest income other than recoveries from

impaired loans 135,014 130,240 - - - Inter-company - - 3,490 1,497 Impaired loans, advances and financing 259 241 - - Money at call and deposit placements with

financial institutions 41,573 30,947 - 1 Financial assets held-for-trading 6,957 951 - - Financial investments available-for-sale 42,675 49,761 - - Financial investments held-to-maturity 1,605 235 - - Others 9,012 2,110 - -

237,095 214,485 3,490 1,498

3 1 . I N T E R E S T E X P E N S E

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Deposits and placements from banks and other financial institutions 12,454 8,006 - -

Borrowings 7,294 5,204 5,200 884 Deposits from customers 134,892 122,376 - - Redeemable unsecured loan stocks - 2,361 - 2,361 Subordinated obligation - 65 - -

154,640 138,012 5,200 3,245

K & N KENANGA


2015

FINANCIALS


3 2 . O T H E R O P E R A T I N G I N C O M E

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

(a) Fee income:Commissions 17,421 14,030 - - Processing fees on loans, advances

and financing 5,085 7,360 - - Corporate advisory fees 10,373 14,606 - - Placement fees 6,635 6,222 - - Guarantee fees 9 - 841 947 Underwriting commission 3,258 2,070 - - Brokerage fees 186,387 220,619 - - Management fee income 30,609 48,790 - - Other fee income 11,837 10,458 - -

271,614 324,155 841 947

(b) Investment and trading income/(loss):Financial assets held-for-trading and

derivatives 3,194 28,224 - - Financial investments available-for-sale 2,207 (2,793) - -

5,401 25,431 - -

(c) Gross dividend income from:- Financial assets held-for-trading 3,233 691 1,593 979 - Financial investments available-for-sale 568 1,740 - -

3,801 2,431 1,593 979

(d) Unrealised gain on revaluation of financial assets held-for-trading and derivative assets 18,110 6,176 1,457 59

(e) Other income:Foreign exchange gain/(loss), net 4,448 5,444 3 (5)Gain on disposal of property, plant

and equipment 168 307 - - Gain on disposal of subsidiary - 487 - - Loss on dissolution of subsidiaries (50) - - - Others 3,933 5,527 30,776 27,878

8,499 11,765 30,779 27,873

Total other operating income 307,425 369,958 34,670 29,858


FINANCIALS


3 3 . O T H E R O P E R A T I N G E X P E N S E S

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Personnel costs- Salaries, allowances and bonuses 111,365 122,290 14,700 17,687

- EPF 14,348 14,536 1,734 2,031 - Others 14,392 17,438 3,639 3,594

140,105 154,264 20,073 23,312

Establishment costs- Depreciation of property, plant and equipment

(Note 16) 8,963 15,759 516 466 - Amortisation of intangible assets (Note 18) 456 211 - - - Rental of premises 23,171 24,074 1,753 1,880 - Rental of equipment 588 614 150 462 - Repairs and maintenance 2,401 2,723 218 337 - Information technology expenses 8,075 7,251 155 93 - Others 5,284 3,409 174 197

48,938 54,041 2,966 3,435

Marketing expenses- Advertisement and publicity 8,596 9,494 1,136 748 - Others 5,163 6,250 537 1,072

13,759 15,744 1,673 1,820

Administration and general expenses- Communication expenses 6,748 6,375 171 121 - Regulatory charges 23,318 23,405 134 244 - Printing and stationery 1,803 1,773 105 134 - Professional fees and legal fees 12,754 2,659 1,179 1,806 - Administrative expenses 17,235 14,630 3,512 2,466 - Others 116,988 129,920 - -

178,846 178,762 5,101 4,771

Total other operating expenses 381,648 402,811 29,813 33,338

K & N KENANGA


2015

FINANCIALS


3 3 . O T H E R O P E R A T I N G E X P E N S E S ( C O N T ’ D . )

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Included in the other operating expenses are the following:

Auditors’ remuneration- Statutory audit 494 542 47 48 - Assurance related 73 63 25 25 - Other services 228 435 15 15

Directors’ remuneration (Note 38) 6,075 6,349 4,219 4,210

Write-off of intercompany balances - - (1) - Rental of equipment 588 614 150 462 Property, plant and equipment written off 657 723 - -

3 4 . W R I T E B A C K O F / ( A L L O W A N C E F O R ) I M P A I R M E N T O N L O A N S , A D V A N C E S A N D F I N A N C I N G

Group

2015 RM’000

2014 RM’000

Write back of/(allowance for) impairment on loans, advances and financing:- collective allowance, net (Note 10 (ix)) 23 431 - individual allowance, net (Note 10 (ix)) 330 (257)Bad debts and financing recovered 982 552

1,335 726

3 5 . ( A L L O W A N C E F O R ) / W R I T E B A C K O F I M P A I R M E N T O N B A L A N C E S D U E F R O M C L I E N T S , B R O K E R S A N D O T H E R R E C E I V A B L E S

Group

2015 RM’000

2014 RM’000

Impairment allowances on balances due from clients and brokers:- individual impairment (Note 11) (7,763) (18,586)- amount written back (Note 11) 6,574 4,408 Bad debts and financing recovered 54 4,651 Allowance for impairment for other assets, net (Note 12) (1,198) (887)

(2,333) (10,414)


FINANCIALS


3 6 . S I G N I F I C A N T R E L A T E D P A R T Y T R A N S A C T I O N S A N D B A L A N C E S In addition to the transactions detailed elsewhere in the financial statements, the Group and the Company had the following

transactions with related parties during the financial year:

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Transactions

Income earned:Interest on deposits and placements:- Subsidiary - - 652 676

Fee for corporate guarantee:- Subsidiaries - - 841 947

Interest on loans, advances and financing:- Subsidiaries - - 2,838 821 - Other related parties 368 71 - -

Group support services charged:- Subsidiaries - - 30,776 27,877

Brokerage Fees- Key management personnel 25 24 - -

Corporate advisory fees- Other related parties 600 550 - -

Placement income- Other related party 90 60 - -

Management fee income- Other related party - 75 - -

Expenditure incurred:Interest on deposits and placements:- Other related parties 275 1,110 - -

Rental of office premises:- Subsidiaries - - 1,650 1,865

Rental of office equipment:- Subsidiaries - - 59 357

K & N KENANGA


2015

FINANCIALS


3 6 . S I G N I F I C A N T R E L A T E D P A R T Y T R A N S A C T I O N S A N D B A L A N C E S ( C O N T ’ D . )

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Expenditure incurred: (cont’d.)Fee for corporate finance activities:- Subsidiaries - - 134 453

Group support services incurred:- Subsidiary - - 916 668

BalancesAmount due to:Deposits and placements:- Other related parties - 15,000 - - - Key management personnel 455 100 - -

Interest payable on deposits:- Other related parties - 32 - -

Balances due to clients and brokers:- Key management personnel 4 1 - -

Amount due from:Deposits and placements:- Subsidiaries - - 1,986 8,131

Interest receivable on deposits:- Subsidiaries - - 278 -

Loans, advances and financing:- Subsidiary - - 63,000 63,000 - Other related parties - 13,371 - -

Name Notes

CMS Capital Sdn Bhd Substantial shareholder of K & N Kenanga Holdings Berhad

Cahya Mata Sarawak Berhad Holding company of a substantial shareholder of K & N Kenanga Holdings Berhad

Sarawak Cable Bhd Deemed a related party of K & N Kenanga Holdings Berhad

The directors are of the opinion that the above transactions were entered into in the normal course of business and have been established under terms that are no less favourable than those obtainable in transactions with unrelated parties.


FINANCIALS


3 7 . C O M P E N S A T I O N O F K E Y M A N A G E M E N T P E R S O N N E L The remuneration of directors and other members of key management personnel during the financial year was as follows:

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Short-term employee benefits 16,481 17,170 8,000 8,026 Post-employment benefits: EPF 2,274 2,367 1,013 1,002

18,755 19,537 9,013 9,028

Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group either directly or indirectly. The key management personnel of the Group and of the Company include all executive directors and certain members of senior management.

3 8 . D I R E C T O R S ’ R E M U N E R A T I O N Remuneration in aggregate for directors charged to profit or loss for the financial year is as follows:

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Directors of the CompanyExecutive director’s remuneration: Other emoluments 2,585 2,586 2,585 2,586 Non-Executive directors’ remuneration: Fees 3,035 3,350 1,292 1,375 Other remuneration, including meeting

allowance 234 282 121 118 Total directors’ remuneration 5,854 6,218 3,998 4,079 Estimated money value of benefits-in-kind 221 131 221 131

6,075 6,349 4,219 4,210

K & N KENANGA


2015

FINANCIALS


3 8 . D I R E C T O R S ’ R E M U N E R A T I O N ( C O N T ’ D . )

The total remuneration (including benefits-in-kind) of the directors of the Company are as follows:

Remuneration received from Group

FeesRM’000

SalariesRM’000

OtherEmolument

RM’000Bonus

RM’000

Benefits-in-kind

RM’000

GroupTotal

RM’000

31 December 2015

Executive Director:Datuk Chay Wai Leong - 1,512 317 756 93 2,678

Non-Executive Directors:Tengku Dato’ Paduka Noor Zakiah

Binti Tengku Ismail 490 - 19 - 97 606 Datuk Syed Ahmad Alwee Alsree 510 - 29 - 31 570 Raja Dato’ Seri Abdul Aziz Bin Raja Salim 77 - 7 - - 84 Dato’ Richard Alexander John Curtis 300 - 24 - - 324 Datuk Kevin How Kow 378 - 31 - - 409 Luigi Fortunato Ghirardello 388 - 36 - - 424 Ismail Harith Merican 330 - 32 - - 362 Izlan Bin Izhab 209 - 26 - - 235 Luk Wai Hong, William 353 - 30 - - 383 Total Directors’ remuneration 3,035 1,512 551 756 221 6,075

31 December 2014

Executive Director:Datuk Chay Wai Leong - 1,512 318 756 100 2,686

Non-Executive Directors:Tengku Dato’ Paduka Noor Zakiah

Binti Tengku Ismail 490 - 23 - 28 541 Datuk Syed Ahmad Alwee Alsree 510 - 29 - 3 542 Raja Dato’ Seri Abdul Aziz Bin Raja Salim 500 - 60 - - 560 Dato’ Richard Alexander John Curtis 300 - 23 - - 323 Datuk Kevin How Kow 360 - 35 - - 395 Luigi Fortunato Ghirardello 360 - 31 - - 391 Ismail Harith Merican 330 - 36 - - 366 Izlan Bin Izhab 200 - 21 - - 221 Luk Wai Hong, William 300 - 24 - - 324 Total Directors’ remuneration 3,350 1,512 600 756 131 6,349


FINANCIALS


3 8 . D I R E C T O R S ’ R E M U N E R A T I O N ( C O N T ’ D . ) The number of directors of the Company whose total remuneration during the financial year fell within the following bands is

analysed below:

CompanyNumber of Directors

2015 2014

Executive Director:RM2,650,001 - RM2,700,000 1 1

Non-Executive Directors:Below RM50,000 1 - RM50,001 - RM100,000 - - RM100,001 - RM150,000 4 4 RM150,001 - RM200,000 2 3 RM200,001 - RM250,000 - 2 RM250,001 - RM300,000 1 - RM300,001 - RM350,000 1 -

3 9 . C R E D I T T R A N S A C T I O N S A N D E X P O S U R E S W I T H C O N N E C T E D P A R T I E S

Group

2015 RM’000

2014 RM’000

Outstanding credit exposures with connected parties 179,071 186,579

Percentage of outstanding credit exposures to connected parties:- as a proportion of total credit exposures 5.18% 5.86%- which is impaired or in default - -

The disclosure on Credit Transactions and Exposures with Connected Parties above is presented in accordance with

paragraph 9.1 of BNM’s revised Guidelines on Credit Transactions and Exposures with Connected Parties, which became effective on 1 January 2008 for the investment banking subsidiary.

Based on these guidelines, a connected party refers to the following:

(i) Directors of the investment banking subsidiary and their close relatives;

(ii) Controlling shareholder and his close relatives;

(iii) Executive officer, being a member of management having authority and responsibility for planning, directing and/or controlling the activities of the investment banking subsidiary, and his close relatives;

K & N KENANGA


2015

FINANCIALS


3 9 . C R E D I T T R A N S A C T I O N S A N D E X P O S U R E S W I T H C O N N E C T E D P A R T I E S ( C O N T ’ D . )

(iv) Officers who are responsible for or have the authority to appraise and/or approve credit transactions or review the status of existing credit transactions, either as a member of a committee or individually, and their close relatives;

(v) Firms, partnerships, companies or any legal entities which control, or are controlled by any person listed in (i) to (iv) above, or in which they have an interest, as a director, partner, executive officer, agent or guarantor, and their subsidiaries or entities controlled by them;

(vi) Any person for whom the persons listed in (i) to (iv) above is a guarantor; and

(vii) Subsidiary of or an entity controlled by the investment banking subsidiary and its connected parties.

4 0 . T A X A T I O N A N D Z A K A T

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Continuing operationsCurrent income tax:Tax expense for the financial year 7,870 8,028 210 - Underprovision in prior years 700 733 213 -

8,570 8,761 423 -

Deferred tax (Note 17)Relating to reduction in Malaysian income tax 97 - 38 - Relating to origination and reversal of

temporary differences (1,948) 4,181 200 (650)(Over)/underprovision of deferred tax assets

in prior financial years (1,133) (1,723) 100 402 (2,984) 2,458 338 (248)

Zakat 176 78 - -

Total income tax expense/(credit) from continuing operations 5,762 11,297 761 (248)

Total income tax expense/(credit) 5,762 11,297 761 (248)

Domestic income tax is calculated at the statutory tax rate of 25% (2014: 25%) on the estimated chargeable profit for the financial year. The Malaysian statutory income tax rate will be reduced to 24% from the current year’s rate of 25%, effective year of assessment 2016.


FINANCIALS


4 0 . T A X A T I O N A N D Z A K A T ( C O N T ’ D . )

A reconciliation of the taxation applicable to profit before taxation at the statutory income tax rate to taxation at the effective tax rate of the Group and of the Company is as follows:

Group Company

2015 RM’000

2014 RM’000

2015 RM’000

2014 RM’000

Profit/(loss) before taxation and zakat: Continuing operations 18,223 41,767 3,147 (5,227) Discontinued operation - (147) - -

18,223 41,620 3,147 (5,227)

Tax at Malaysian statutory income tax rate of 25% (2014: 25%) 4,556 10,405 787 (1,307)

Tax effect of expenses that are not deductible for tax purposes 2,592 5,813 785 1,352

Income not subject to tax (1,428) (3,410) (398) - Deferred tax assets not recognised on

unutilised business losses 940 - - - Effect of changes in tax rate on opening

deferred tax 97 - 38 - Utilisation of previously unrecognised tax

losses and unabsorbed allowances (845) (705) (764) (695)Deferred tax assets not recognised on

unabsorbed capital allowances 107 106 - - (Over)/underprovision of deferred tax in

prior financial years (1,133) (1,723) 100 402 Underprovision of income tax in prior

financial years 700 733 213 - Tax expense/(credit) for the financial year 5,586 11,219 761 248Zakat 176 78 - - Tax expense/(credit) and zakat for the

financial year 5,762 11,297 761 (248)

Tax savings during the financial year arising from:

Utilisation of current financial year tax losses 684 470 - - Utilisation of previously unrecognised tax

losses brought forward 778 6,826 744 695

K & N KENANGA


2015

FINANCIALS


4 1 . B A S I C A N D D I L U T E D E A R N I N G S P E R S H A R E

Basic and diluted earnings per share amounts are calculated by dividing profit for the financial year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue during the financial year.

Group

2015 RM’000

2014 RM’000

Profit from continuing operations attributable to ordinary equity holders of the Company 11,304 29,653 Loss from discontinued operation attributable to ordinary equity holders of the Company - (147)Profit attributable to ordinary equity holders of the Company 11,304 29,506

Weighted average number of ordinary shares in issue 726,678,068 731,759,499

Basic/diluted earnings per share for (sen):Profit from continuing operations 1.56 4.05 Loss from discontinued operation - (0.02)Profit for the financial year 1.56 4.03

Diluted earnings per share is the same as basic earnings per share as there are no dilutive potential ordinary shares during the

financial year. 4 2 . D I V I D E N D S

Dividend paid by the Company amounted to RM7,249,031 during the financial year relates to the financial year ended 31 December 2014. This is an interim single tier dividend of 1.0 sen per share on the Company’s adjusted issued and paid up share capital of RM724,903,099 (excluding 6,856,400 treasury shares held pursuant to Section 67A of the Companies Act 1965).

The Company does not recommend any final dividend for the current financial year.


FINANCIALS


4 3 . O F F S E T T I N G O F F I N A N C I A L I N S T R U M E N T S

Financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements are as follows:

Gross amounts

of recognised financial

asset/liability

Gross amounts

of recognised financial

asset/liability set off in the statement of

financial position

Net amounts of recognised

financial assets

presented in the statement

of financial position

Net amount

Related accounts not set off in the statement

of financial position

Financial instruments

Cash collateral received

Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

31 December 2015

Balances due from clients and brokers 956,700 (499,373) 457,327 5,461,827 144,004 -

Balances due to clients and brokers 1,750,007 (853,705) 896,302 - - 896,302

31 December 2014

Balances due from clients and brokers 671,483 (293,179) 378,304 4,423,783 57,969 -

Balances due to clients and brokers 1,374,307 (629,545) 744,762 - - 744,762

K & N KENANGA


2015

FINANCIALS


4 4 . C O M M I T M E N T S A N D C O N T I N G E N C I E S In the normal course of business, the Group makes various commitments and incur certain contingent liabilities with legal

recourse to their customers. No material losses are anticipated as a result of these transactions. As at reporting date, the commitments and contigencies are as follows:

Group

2015 Principal Amount

RM’000

2014 Principal Amount RM’000

Commitments to extend credit with maturity of less than 1 year:- margin 1,400,821 1,318,017 - foreign exchange related contracts 123,114 22,775 - equity exchange related contracts 35,350 - Commitments to extend credit with maturity of more than 1 year:- term loan 7,249 1,626 Miscellaneous commitments 597,665 554,124

2,164,199 1,896,542

Contingent Liabilities

Group

2015 RM’000

2014 RM’000

(a) Investment banking subsidiary guarantee issued to Bursa Malaysia Securities Clearing Sdn Bhd in relation to the investment banking subsidiary’s obligation to contribute to the clearing guarantee fund. 1,407 1,334

(b) On 24 December 2008, the investment banking subsidiary was served with a writ of summons from an individual alleging that the investment banking subsidiary’s nominated agent in trust represented that the investment banking subsidiary was the placement agent for the IPO shares of five listed companies. Payments for the shares were purportedly made to the nominated agent in trust. The investment banking subsidiary was never appointed as placement agent for the five mentioned IPOs. The individual alleges non-receipt of the IPO shares or any sales proceeds therefrom. The trial for this matter has been concluded with the High Court’s Judgment against the investment banking subsidiary on 1 February 2014. On 15 February 2014, the investment banking subsidiary lodged an appeal to the Court of Appeal against the said Judgment. On 6 March 2014, the High Court Judge granted a conditional stay of the effect of the Judgment pending the outcome of the investment banking subsidiary’s appeal to the Court of Appeal. On 30 June 2015, the Court of Appeal granted the investment banking subsidiary’s appeal with costs. On 30 July 2015, the Plainitff filed a Notice of Motion for leave to appeal to the Federal Court against the decision of the Court of Appeal. The case is now fixed for hearing on 13 April 2016. 4,220 4,220


FINANCIALS


4 4 . C O M M I T M E N T S A N D C O N T I N G E N C I E S ( C O N T ’ D . )

Contingent Liabilities (cont’d.)

Group

2015 RM’000

2014 RM’000

(c) The investment banking subsidiary litigated against the client. The client defended and counter-claimed against the investment banking subsidiary. The investment banking subsidiary had withdrawn the Summary Judgment application and proceeded with full trial. The Court had proceeded with the full trial in February 2014 and March 2014. On 29 May 2014, the High Court ruled in favour of the investment banking subsidiary’s claim and dismissed the client’s counter-claim. On 25 June 2014 the client filed her notice of appeal to the Court of Appeal to dismiss the High Court’s decision. On 27 July 2015, the Court of Appeal has dismissed the client’s appeal. Nevertheless, the client has on 24 August 2015 filed an application for leave to appeal to Federal Court. On 18 January 2016, the Federal Court has dismissed the client’s application. The client has exhausted all the legal avenues to appeal against the High Court’s decision to dismiss her counterclaim against the Investment Banking subsidiary. Thus, this case shall be no longer regarded as contingent liability to the investment banking subsidiary. - 1,000

(d) On 17 August 2012, the Plaintiffs filed a claim against ECM Libra Investment Bank Berhad (“EIBB”) (which had, on 14 December 2012, been merged with the investment banking subsidiary vide a vesting order) for the return of the balance amount in two (2) margin accounts held under the Plaintiffs’ names. The said amount was used by EIBB towards satisfaction of a judgment debt owing by a judgment debtor (“Judgment Debtor”). The Judgment Debtor claimed that the monies held in the said margin accounts under the Plaintiffs’ names belonged to him and represented to EIBB that the monies may be used towards satisfaction of his judgment debt to EIBB. EIBB had commenced third party proceedings against the Judgment Debtor and had applied to convert the Originating Summons into a writ action. The converted action is now known as Suit No. 22NCC-1315-08/2012 (“Writ Action”) as described in paragraph (e) below. 2,050 2,050

(e) The Judgment Debtor remains a third party in the Writ Action. He also applied to intervene to be named as a Defendant. The High Court allowed his application. He has since filed his Defence and Counterclaim against the Plaintiffs. The trial commenced on 22 July 2013 with various continuation dates and concluded on 18 February 2014 and the High Court has dismissed the Plaintiffs claims on 16 May 2014. The Plaintiffs have filed an appeal on 11 June 2014 to the Court of Appeal and the Court of Appeal has fixed 12 November 2015 for hearing. The appeal is now fixed for continued hearing on 22 April 2016. 1,054 1,054

Based on legal advice obtained, the Board of Directors are of the opinion that the Group has good grounds to defend these claims and that no provisions are necessary as at reporting date.

K & N KENANGA


2015

FINANCIALS


4 4 . C O M M I T M E N T S A N D C O N T I N G E N C I E S ( C O N T ’ D . )

Company

2015 RM’000

2014 RM’000

Corporate guarantee provided by the Company for subsidiary companies for credit facilities granted by licensed banks. 333,000 293,000

Corporate guarantee provided by the Company for a subsidiary company to a counter party against cash collateral. 60,000 75,000

4 5 . C A P I T A L A D E Q U A C Y A N D C A P I T A L M A N A G E M E N T Capital management

The Group maintains an actively managed capital base to cover risks inherent in the business. The adequacy of the regulated subsidiaries’ capital is monitored using, among other measures, the rules and ratios established by the Basel Committee on Banking Supervision, Bursa Securities, Securities Commission and other relevant regulators.

The primary objectives of the regulated subsidiaries’ capital management are to ensure that the subsidiaries comply with externally imposed capital requirements and maintain strong credit ratings and healthy capital ratios in order to support its business and to maximise shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in the economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payments to its shareholder, return capital to its shareholder or issue capital securities. Nonetheless, it is under constant scrutiny of the Board.

Capital adequacy

The capital adequacy ratios of the investment banking subsidiary are computed in accordance with BNM’s revised Risk-Weighted Capital Adequacy Framework (“RWCAF”). The investment banking subsidiary has adopted the Standardised Approach for Credit Risk and Market Risk, and the Basic Indicator Approach for Operational Risk (Basel II). The minimum regulatory capital adequacy requirements for Common Equity Tier 1 (“CET 1”), Tier 1 and Total Capital are 4.5%, 6.0% and 8.0% of total Risk Weighted Assets.


FINANCIALS


4 5 . C A P I T A L A D E Q U A C Y A N D C A P I T A L M A N A G E M E N T ( C O N T ’ D . ) Capital adequacy of the investment banking subsidiary

(i) Components of Tier 1 and Tier 2 capital:

Investment banking subsidiary

2015 RM’000

2014 RM’000

The capital adequacy ratios of the investment banking subsidiary are as follows:CET 1 capital ratio 28.36% 31.92%Tier 1 capital ratio 28.36% 31.92%Total capital ratio 28.36% 31.92%

CET 1 capital/Tier 1 CapitalPaid-up share capital 770,000 770,000 Share premium 65,500 65,500 Accumulated losses (47,895) (31,592)Other reserves 103,948 79,150 Less: Goodwill (252,909) (252,909) Deferred tax assets (7,758) (3,483) Other intangibles (52,500) (52,500) Regulatory reserve (22,111) - Deduction in excess of Tier 2 * (104,990) (115,680)Total CET 1/Tier 1 capital 451,285 458,486

Tier 2 CapitalCollective impairment allowance 11,105 415 Less: Regulatory adjustments applied on Tier 2 capital (11,105) (415)Total Tier 2 capital - - Total Capital 451,285 458,486

* The portion of regulatory adjustments not deducted from Tier 2 (as the investment banking subsidiary does not have enough Tier 2 to satisfy the deduction) is deducted from the next higher level of capital; as per paragraph 31.1 of the BNM’s Capital Adequacy Framework (Capital Components).

K & N KENANGA


2015

FINANCIALS


4 5 . C A P I T A L A D E Q U A C Y A N D C A P I T A L M A N A G E M E N T ( C O N T ’ D . ) Capital adequacy of the investment banking subsidiary (cont’d.)

(i) Components of Tier 1 and Tier 2 capital: (cont’d.) Breakdown of risk-weighted assets in the various categories of risks are as follows:

2015 2014

Notional RM’000

Risk- weighted RM’000

Notional RM’000


Investment banking subsidiaryCredit risk 3,906,967 888,384 3,936,970 941,955 Market risk - 264,206 - 109,019 Operational risk - 438,746 - 385,366 Total Risk Weighted Assets 3,906,967 1,591,336 3,936,970 1,436,340

4 6 . S E G M E N T A L R E P O R T I N G

The business segment results are prepared based on the Group’s internal management reporting, which reflect the organisation’s management reporting structure.

As a result of an internal re-organisation, there is a change in business segment reporting. The Group has been re-organised into six major operating divisions. The divisions form the basis of which the Group reports its segment information.

(i) Investment banking - Investment banking business, treasury and related financial services;

(ii) Stockbroking - Dealings in securities and investment related services;

(iii) Futures broking - Futures broker business;

(iv) Money lending and financing - Licensed money lender and financing;

(v) Investment management - Management of funds and unit trusts; and

(vi) Corporate and others - Investment holding and management services, support services comprise all middle and back office functions include business operations conducted by the Group’s associates and investment in the Kingdom of Saudi Arabia, Vietnam and Sri Lanka.

Except as indicated above, no operating segments have been aggregated to form the above reportable operating segments.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which, in certain respects as explained in the table below, is measured differently from operating profit or loss in the consolidated financial statements. Group income taxes are managed on a group basis and are not allocated to operating segments. Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.


FINANCIALS


46

. S

EG

ME

NT

AL

RE

PO

RT

ING

(C

ON

T’D

.)

The

follo

win

g ta

ble

prov

ides

an

anal

ysis

of t

he G

roup

’s re

venu

e, re

sults

, ass

ets,

liab

ilitie

s an

d ot

her

info

rmat

ion

by o

pera

ting

segm

ents

:

Con

tinui

ng O

pera

tions

Inve

stm

ent

ban

king

R

M’0

00

Stoc

kbro

king

R

M’0

00

Fut

ures

b

roki

ng

RM

’000

Mon

ey le

ndin

g an

d fi

nanc

ing

RM

’000

Inve

stm

ent

man

agem

ent

RM

’000

Cor

pora

te

and

oth

ers

RM

’000

E

limin

atio

ns

RM

’000

T

otal

R

M’0

00

31 D

ecem

ber

201

5R

even

ueE

xter

nal s

ales

197

,700

2

69,2

45

29,

924

11,

623

30,

317

24,

179

-

562

,988

In

ter-

segm

ent s

ales

3,2

96

418

1

,387

(4

2) 1

,176

3

5,10

7 (4

1,34

2) -

To

tal r

even

ue 2

00,9

96

269

,663

3

1,31

1 1

1,58

1 3

1,49

3 5

9,28

6 (4

1,34

2) 5

62,9

88

Res

ult

Net

inco

me

57,2

10

257

,265

2

5,02

1 4

,700

3

2,80

4 5

9,39

0 (3

7,06

7) 3

99,3

23

Oth

er o

pera

ting

expe

nses

(43,

421)

(240

,228

) (1

9,30

7) (4

,691

) (3

9,03

4) (7

1,14

5) 3

6,17

8 (3

81,6

48)

(Allo

wan

ce fo

r)/w

rite

back

of

impa

irmen

t on

loan

s,

adva

nces

and

fina

ncin

g(2

3) 8

12

-

-

-

499

4

7 1

,335

W

rite

back

of/

(Allo

wan

ce fo

r) im

pairm

ent o

n ba

lanc

es d

ue

from

clie

nts

and

brok

ers

and

othe

r re

ceiv

able

s36

7 (1

,134

) -

-

-

(1

,566

) -

(2

,333

)S

hare

of r

esul

ts in

ass

ocia

tes

-

-

-

-

-

1,5

46

-

1,5

46

Pro

fit b

efor

e ta

xatio

n an

d za

kat

14,

133

16,

715

5,7

14

9

(6,2

30)

(11,

276)

(842

) 1

8,22

3

Taxa

tion

and

zaka

t (5

,762

)N

et p

rofi

t fo

r th

e fi

nanc

ial y

ear

12,

461

K & N KENANGA


2015

FINANCIALS


46

. S

EG

ME

NT

AL

RE

PO

RT

ING

(C

ON

T’D

.)

The

follo

win

g ta

ble

prov

ides

an

anal

ysis

of t

he G

roup

’s re

venu

e, re

sults

, ass

ets,

liab

ilitie

s an

d ot

her

info

rmat

ion

by o

pera

ting

segm

ents

: (co

nt’d

.)

C

ontin

uing

Ope

ratio

ns

Inve

stm

ent

ban

king

R

M’0

00

Sto

ckbr

okin

g R

M’0

00

Fut

ures

b

roki

ng

RM

’000

Mon

ey le

ndin

g an

d fi

nanc

ing

RM

’000

Inve

stm

ent

man

agem

ent

RM

’000

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pora

te

and

oth

ers

RM

’000

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limin

atio

ns

RM

’000

T

otal

R

M’0

00

31 D

ecem

ber

201

5O

ther

info

rmat

ion

Net

inte

rest

inco

me

18,8

82

42,

186

7,5

48

1,8

86

1,2

03

14,

408

-

86,

113

Dep

reci

atio

n an

d am

ortis

atio

n65

2 5

,226

1

44

19

970

2

,408

-

9

,419

N

on c

ash

expe

nses

- U

nrea

lised

(los

ses)

/gai

ns

on

reva

luat

ion

of fi

nanc

ial

asse

ts h

eld-

for-

trad

ing

and

deriv

ativ

es(1

89)

15,

099

-

-

-

3,0

30

-

17,

940

Con

tinui

ng O

pera

tions

Not

es

Inve

stm

ent

bank

ing

and

stoc

kbro

king

RM

’000

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ures

b

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’000

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ey le

ndin

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stm

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pora

te

and

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ers

RM

’000

E

limin

atio

ns

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’000

T

otal

R

M’0

00

Ass

ets

In

vest

men

ts in

ass

ocia

tes

-

-

-

-

66,

838

-

66,

838

A

dditi

ons

to n

on-c

urre

nt a

sset

sA

4,3

62

15

15

770

1

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-

6

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Seg

men

ts a

sset

sB

5,4

85,9

39

600

,260

1

46,1

60

63,

496

884

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(1

,059

,412

) 6

,120

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Liab

iliti

es

Seg

men

t lia

bilit

ies

C 4

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5

64,1

54

135

,570

2

5,59

2 1

31,9

98

(195

,625

) 5

,256

,074


FINANCIALS


46

. S

EG

ME

NT

AL

RE

PO

RT

ING

(C

ON

T’D

.)

Th

e fo

llow

ing

tabl

e pr

ovid

es a

n an

alys

is o

f the

Gro

up’s

reve

nue,

resu

lts, a

sset

s, li

abilit

ies

and

othe

r in

form

atio

n by

ope

ratin

g se

gmen

ts: (

cont

’d.)

Con

tinui

ng O

pera

tions

D

isco

ntin

ued

Ope

ratio

n

Inve

stm

ent

bank

ing

RM

’000

St

ockb

roki

ng

RM

’000

Futu

res

brok

ing

RM

’000

Mon

ey

lend

ing

and

finan

cing

R

M’0

00

Inve

stm

ent

man

agem

ent

RM

’000

Cor

pora

te

and

othe

rs

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’000

El

imin

atio

ns

RM

’000

To

tal

RM

’000

O

ther

s R

M’0

00

31 D

ecem

ber

201

4

Rev

enue

Ex

tern

al s

ales

202

,798

2

91,7

04

20,

008

12,

448

48,

519

19,

684

-

595

,161

-

In

ter-

segm

ent s

ales

3,7

97

16

1,4

28

-

2,2

04

37,

571

(45,

016)

-

-

Tota

l rev

enue

206

,595

2

91,7

20

21,

436

12,

448

50,

723

57,

255

(45,

016)

595

,161

-

Res

ult

Net

inco

me

74,

524

281

,551

2

0,04

4 5

,787

5

1,51

2 6

0,93

4 (4

2,52

0) 4

51,8

32

-

Oth

er o

pera

ting

expe

nses

(42,

746)

(259

,023

) (1

5,77

4) (4

,737

) (3

7,04

9) (7

9,10

7) 3

5,62

5 (4

02,8

11)

(147

)

Writ

e ba

ck o

f im

pairm

ent o

n lo

ans,

adv

ance

s an

d fin

anci

ng (8

4) 5

61

-

-

-

-

249

7

26

-

(Allo

wan

ce fo

r)/w

rite

back

of

impa

irmen

t on

bala

nces

due

fro

m c

lient

s an

d br

oker

s an

d ot

her r

ecei

vabl

es im

pairm

ent

char

ge (2

41)

(5,8

44)

-

-

-

(4,3

29)

-

(10,

414)

-

Writ

e ba

ck o

f/(al

low

ance

for)

impa

irmen

t of i

nves

tmen

t in

asso

ciat

es -

-

-

-

-

-

-

-

-

Sha

re o

f res

ults

in a

ssoc

iate

s -

-

-

-

-

2

,434

-

2

,434

-

Pro

fit/(l

oss)

bef

ore

taxa

tion

and

zaka

t 3

1,45

3 1

7,24

5 4

,270

1

,050

1

4,46

3 (2

0,06

8) (6

,646

) 4

1,76

7 (1

47)

Taxa

tion

and

zaka

t (1

1,29

7) -

Net

pro

fit

for

the

fina

ncia

l yea

r 3

0,47

0 (1

47)

K & N KENANGA


2015

FINANCIALS


46

. S

EG

ME

NT

AL

RE

PO

RT

ING

(C

ON

T’D

.)

Th

e fo

llow

ing

tabl

e pr

ovid

es a

n an

alys

is o

f the

Gro

up’s

reve

nue,

resu

lts, a

sset

s, li

abilit

ies

and

othe

r in

form

atio

n by

ope

ratin

g se

gmen

ts: (

cont

’d.)

C

ontin

uing

Ope

ratio

ns

Dis

cont

inue

dO

pera

tion

Inve

stm

ent

bank

ing

RM

’000

St

ockb

roki

ng

RM

’000

Futu

res

brok

ing

RM

’000

Mon

ey

lend

ing

and

finan

cing

R

M’0

00

Inve

stm

ent

man

agem

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RM

’000

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pora

te

and

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rs

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’000

El

imin

atio

ns

RM

’000

To

tal

RM

’000

O

ther

s R

M’0

00

31 D

ecem

ber

201

4

Oth

er in

form

atio

n

Net

inte

rest

inco

me

16,

766

41,

944

5,8

87

2,0

62

905

1

3,65

2 -

8

1,21

6 -

Dep

reci

atio

n an

d am

ortis

atio

n 8

17

7,6

98

288

1

05

1,0

11

6,0

51

-

15,

970

-

Non

cas

h ex

pens

es

- U

nrea

lised

(los

ses)

/ga

ins

on re

valu

atio

n of

fin

anci

al a

sset

s he

ld-f

or-

trad

ing

and

deriv

ativ

es (4

,121

) 9

,755

-

-

-

5

42

-

6,1

76

-

Con

tinui

ng O

pera

tions

D

isco

ntin

ued

Ope

ratio

n

Not

es

Inve

stm

ent

bank

ing

and

stoc

kbro

king

RM

’000

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res

brok

ing

RM

’000

Mon

eyle

ndin

g an

d fin

anci

ng

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’000

Inve

stm

ent

man

agem

ent

RM

’000

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pora

te

and

othe

rs

RM

’000

El

imin

atio

ns

RM

’000

To

tal

RM

’000

O

ther

s R

M’0

00

Ass

ets

Inve

stm

ents

in a

ssoc

iate

s -

-

-

-

5

9,22

2 -

5

9,22

2 -

Add

ition

s to

non

-cur

rent

ass

ets

A 1

1,79

9 1

,442

4

1

,110

9

69

-

15,

324

-

S

egm

ents

ass

ets

B 5

,236

,302

4

66,7

98

163

,215

6

1,97

6 9

05,6

98

(1,1

03,9

44)

5,7

30,0

45

-

Liab

ilitie

s

S

egm

ent l

iabi

litie

sC

4,3

53,2

43

434

,978

1

52,7

50

17,

489

142

,245

(2

33,8

34)

4,8

66,8

71

-


FINANCIALS


4 6 . S E G M E N T A L R E P O R T I N G ( C O N T ’ D . )

A Additions to non-current assets consist of:

2015 RM’000

2014 RM’000

Property, plant and equipment 5,972 13,897 Intangible assets 521 1,909

6,493 15,806

Nature of adjustments and eliminations to arrive at amounts reported in the consolidated financial statements.

B The following items are added to/(deducted from) segment assets to arrive at total assets reported in the consolidated statements of financial position:

2015 RM’000

2014 RM’000

Investment in subsidiaries (832,789) (832,289)Investment in associates 9,416 1,801 Intangible assets (40,095) (40,095)Inter-segment assets (195,944) (233,361)

(1,059,412) (1,103,944) C The following items are added to/(deducted from) segment liabilities to arrive at total liabilities reported in the

consolidated statements of financial position:

2015 RM’000

2014 RM’000

Deposit accepted from subsidiaries (71,521) (83,015)Inter-segment liabilities (124,104) (150,819)

(195,625) (233,834)

K & N KENANGA


2015

FINANCIALS


4 7 . F A I R V A L U E O F F I N A N C I A L A S S E T S A N D L I A B I L I T I E S

The carrying amounts and the fair values of the financial assets and liabilities of the Group and the Company are as follows:

2015 2014

Carrying amount RM’000

Fair value

RM’000

Carrying amount RM’000

Fair value

RM’000

Group

Financial assetsCash and bank balances 1,367,926 1,367,926 1,019,129 1,019,129 Financial assets held-for-trading 338,573 338,573 72,635 72,635 Financial investments available-for-sale 1,249,661 1,249,661 1,709,916 1,709,916 Financial investments held-to-maturity 40,003 39,922 10,005 9,908 Derivative financial assets 2,910 2,910 44 44 Loans, advances and financing 1,930,064 1,926,827 1,890,768 1,886,697 Balances due from clients and brokers 457,327 457,327 378,304 378,304 Other assets 146,360 146,360 66,565 66,565 Statutory deposits with Bank Negara Malaysia 120,753 120,753 127,576 127,576

Financial liabilitiesDeposits from customers 3,229,065 3,229,065 3,092,611 3,092,611 Deposits and placements of banks and

other financial institutions 575,159 575,159 688,054 688,054 Obligations on securities sold under

repurchase agreements 95,310 95,310 - - Balances due to clients and brokers 896,302 896,302 744,762 744,762 Other liabilities 246,228 246,228 180,680 180,680 Derivative financial liabilities 72,278 72,278 7,237 7,237 Borrowings 141,000 141,000 152,336 152,336

Company

Financial assetsCash and bank balances 3,347 3,347 9,760 9,760 Financial assets held-for-trading 19,831 19,831 16,781 16,781 Other assets 483 483 10 10

Financial liabilitiesBorrowings 110,000 110,000 100,000 100,000 Other liabilities 880 880 884 884

Note: The fair values of the other assets, other liabilities and borrowings, which are considered short-term in nature, are

estimated to be approximate their carrying values.


FINANCIALS


4 7 . F A I R V A L U E O F F I N A N C I A L A S S E T S A N D L I A B I L I T I E S ( C O N T ’ D . )

The methods and assumptions used in estimating the fair values of financial instruments areas follows:

(i) Financial assets/liabilities for which fair value approximates carrying value

The carrying amounts of financial assets and financial liabilities that have a short-term maturity and deposits/accounts without a specific maturity, approximate fair values.

(ii) Deposits and placements with banks and other financial institutions

The fair values of these financial instruments with remaining maturity of less than one year approximate their carrying amounts due to the relatively short maturity of the financial instruments. For those financial instruments with maturity of more than one year, the fair values are estimated based on discounted cash flows using applicable prevailing market rates for placements of similar credit risk and similar remaining maturity as at the reporting date.

(iii) Financial assets held-for-trading, financial investments available-for-sale and held-to-maturity

The fair values are estimated based on quoted or observable market prices at the reporting date. Where such quoted or observable market prices are not available, the fair values are estimated using pricing models or discounted cash flow techniques. Where discounted cash flow technique is used, the expected future cash flows are discounted using prevailing market rates for a similar instrument at the reporting date.

(iv) Derivatives

Fair values are estimated based on quoted or observable market price at the reporting date.

Derivative products valued using a valuation technique are valued using the binomial model for options. The model incorporates various market and non-observable assumptions including market rate volatility.

(v) Loans, advances and financing

The fair values of fixed rate loans with remaining maturity of less than one year and variable rate loans are estimated to approximate their carrying values. For fixed rate loans with remaining maturity of more than one year, the fair values are estimated based on expected future cash flows of contractual instalment payments and discounted at applicable prevailing rates at the reporting date offered to new borrowers with similar credit profiles.

(vi) Deposits from customers

The fair values of deposit liabilities payable on demand (demand and savings deposits), or deposits with maturity of less than one year are estimated to approximate their carrying amounts. The fair values of fixed deposits with remaining maturities of more than one year are estimated based on expected future cash flows discounted at applicable prevailing rates offered for deposits of similar remaining maturities. The fair values of Islamic deposits are deemed to approximate their carrying amounts as profit rates are determined at the end of their holding periods based on the profit generated from the assets invested.

(vii) Deposits and placements of banks and other financial institutions

The carrying values of these financial instruments with remaining maturity of less than one year approximate their carrying amounts due to the relatively short maturity of the financial instruments. For deposits and placements with maturities of one year and above, the estimated fair value is based on discounted cash flows using prevailing money market interest rates at which similar deposits and placements would be made with financial institutions of similar credit risk and remaining period to maturity.

(viii) Lending-related commitments

The unfunded portions of commitments to extend credit as well as standby and other letters of credit are stated at their carrying amounts, considering that estimating their fair values is not practicable within the constraints of timeliness or cost to determine with sufficient reliability.

K & N KENANGA


2015

FINANCIALS


4 8 . F I N A N C I A L R I S K M A N A G E M E N T

The Group adopts a proactive and continuous approach in managing risk and has established a risk management framework to ensure that adequate policies and processes are in place to identify and manage risk within defined policies and guidelines approved by the Board of Directors.

The Group’s financial risks are centrally managed by the various committees within the delegated authority by the Board of Directors. These committees formulate, review and approve policies and limits to monitor and manage risk exposures under their respective supervision. The major policy decisions and proposals approved by these committees are subject to further review by Board Risk Committee and/or approval by Board of Directors.

Group Risk Management department assumes the independent oversight of risks undertaken by the Group, and takes the lead in the formulation of risk policies, controls and processes. This is further enhanced by the periodic risk assessment audit carried out by the Group’s Internal Audit.

The main risk areas faced by the Group and the guidelines and policies adopted to manage them are as follows:

(a) Credit risk

Credit risk, or the risk of counterparties defaulting, are controlled by the application of credit approvals, limits and monitoring procedures. Credit risks are minimised and monitored via strictly limiting the Group’s associations to customers with creditworthiness. Balance due from clients and brokers are monitored on an ongoing basis via Group’s management reporting procedures. The Group through its directors and management, reviews all significant exposure to individual customers and counterparties and reviews any major concentration of credit risk related to any financial instrument.

The Group has risk management procedures in place to manage these risks to ensure that all the procedures and principles relating to risk management are adhered to.

Credit-related commitments risks

The Group enters into various commitments which include commitments to extend credit lines and obligation under underwriting agreements. Such commitments expose the Group to similar risks to loans and are mitigated by the same processes and policies.

Risk concentration: maximum exposure to credit risk without taking account of any collateral and other credit enhancement

The Group’s concentration risk is managed by counterparty and by industry sector. The Group applies single customer limits (“SCL”) to protect against unacceptably large exposures to single counterparty risk.

The following table shows the maximum exposure to credit risk for the components of the statement of financial position, including derivatives, by industry before the effect of mitigation through the use of master netting and collateral agreements. Where financial instruments are recorded at fair value, the amounts shown represent the current credit risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in values.

The maximum exposure to credit risk for the components of the statement of financial position, including derivatives, by geography before the effect of mitigation through the use of master netting and collateral agreements is not presented as the Group’s activities are principally conducted in Malaysia.


FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(a)

Cre

dit

ris

k (c

ont

’d.)

The

Gro

upIn

dus

try

anal

ysis

as

at 3

1 D

ecem

ber

201

5

Prim

ary

agr

icultu

re

RM

’000

Man

ufac

turin

g (i

ncl a

gri-b

ased

) R

M’0

00

Elec

tricit

y, g

as &

wat

er

sup

ply

RM

’000

Who

lesale

& re

tail t

rade

, a

nd h

otel

& re

stau

rant

R

M’0

00

R

eal e

stat

e R

M’0

00

Tran

spor

t, s

tora

ge a

nd

com

mun

icatio

ns

RM

’000

Finan

ce a

nd in

sura

nce

RM

’000

Oth

ers

RM

’000

Tota

l R

M’0

00

Fina

ncia

l ass

ets

Cash

and

ban

k ba

lance

s -

-

-

-

-

-

1

,367

,926

-

1

,367

,926

Stat

utor

y dep

osits

with

Ban

k Ne

gara

Mala

ysia

-

-

-

-

-

-

120

,753

-

1

20,7

53

Balan

ces

due

from

clie

nts

and

brok

ers

-

-

-

-

-

-

457

,327

-

4

57,3

27

Finan

cial a

sset

s he

ld-fo

r-tra

ding

Se

curit

ies q

uote

d in

Mala

ysia

74,

390

8,8

53

608

7

1

33

13

23,

152

124

,155

2

31,3

11

M

alays

ian G

over

nmen

t Inve

stmen

t Cer

tifica

tes

-

-

-

-

-

-

57,

373

-

57,

373

Isl

amic

corp

orat

e bo

nds

-

-

-

-

-

49,

889

-

-

49,

889

Deriv

ative

fina

ncial

ass

ets

-

-

-

-

-

-

-

2,9

10

2,9

10

Net l

oans

, adv

ance

s an

d fin

ancin

g

Te

rm lo

ans

-

-

-

-

53,

071

-

-

326

,275

3

79,3

46

Isl

amic

term

loan

s -

-

-

-

-

-

-

4

5,13

7 4

5,13

7

Sh

are

mar

gin

finan

cing

-

25,

851

-

-

108

,966

1

,164

-

1

,262

,018

1

,397

,999

Ot

hers

-

-

-

-

-

-

-

107

,725

1

07,7

25

Finan

cial in

vest

men

ts a

vaila

ble-

for-s

ale

Mala

ysian

Gov

ernm

ent S

ecur

ities

-

-

-

-

-

-

131

,390

-

1

31,3

90

M

alays

ian G

over

nmen

t Inve

stmen

t Cer

tifica

tes

-

-

-

-

-

-

244

,556

-

2

44,5

56

Isl

amic

corp

orat

e bo

nds

9,6

40

-

34,

968

-

10,

039

40,

193

-

25,

210

120

,050

Isl

amic

corp

orat

e bi

lls -

-

-

-

2

4,87

8 -

-

-

2

4,87

8

Co

rpor

ate

bills

-

-

-

-

24,

878

-

-

-

24,

878

Co

rpor

ate

bond

s 1

9,27

9 4

5,42

2 6

9,31

5 -

1

08,5

02

78,

891

138

,346

1

93,9

62

653

,717

Ba

nk N

egar

a M

onet

ary N

otes

-

-

-

-

-

-

39,

706

-

39,

706

Su

kuk

Peru

mah

an K

eraja

an -

-

-

-

-

-

9

,996

-

9

,996

Un

quot

ed e

quitie

s -

-

-

-

-

-

-

4

90

490

Secu

rities

held

-to-m

atur

ity

Co

rpor

ate

bond

s 5

,001

-

-

-

-

-

-

3

0,00

1 3

5,00

2

Isl

amic

corp

orat

e bo

nds

5,0

01

-

-

-

-

-

-

-

5,0

01

Othe

r ass

ets

-

-

-

-

-

-

-

146

,360

1

46,3

60

113

,311

8

0,12

6 1

04,8

91

7

330

,467

1

70,1

50

2,5

90,5

25

2,2

64,2

43

5,6

53,7

20

K & N KENANGA


2015

FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(a)

Cre

dit

ris

k (c

ont

’d.)

The

Gro

upIn

dus

try

anal

ysis

as

at 3

1 D

ecem

ber

201

4

Prim

ary

agr

icultu

re

RM

’000

Man

ufac

turin

g (i

ncl a

gri-b

ased

) R

M’0

00

Elec

tricit

y, g

as &

wat

er

sup

ply

RM

’000

Who

lesale

& re

tail t

rade

, a

nd h

otel

& re

stau

rant

R

M’0

00

R

eal e

stat

e R

M’0

00

Tran

spor

t, s

tora

ge a

nd

com

mun

icatio

ns

RM

’000

Finan

ce a

nd in

sura

nce

RM

’000

Oth

ers

RM

’000

Tota

l R

M’0

00

Fina

ncia

l ass

ets

Cash

and

ban

k ba

lance

s -

- -

- -

- 1

,019

,129

-

1,0

19,1

29

Stat

utor

y dep

osits

with

Ban

k Ne

gara

Mala

ysia

- -

- -

- -

127

,576

-

127

,576

Balan

ces

due

from

clie

nts

and

brok

ers

- -

- -

- -

378

,304

-

378

,304

Finan

cial a

sset

s he

ld-fo

r-tra

ding

Se

curit

ies q

uote

d in

Mala

ysia

- -

- -

- -

- 7

2,63

5 7

2,63

5

Deriv

ative

fina

ncial

ass

ets

- -

- -

- -

- 4

4 4

4

Net l

oans

, adv

ance

s an

d fin

ancin

g

Te

rm lo

ans

- 1

3,37

1 -

- 2

3,13

4 -

- 4

28,9

80

465

,485

Isl

amic

term

loan

s -

- -

- -

- -

15,

055

15,

055

Sh

are

mar

gin

finan

cing

956

2

5,84

3 -

- 1

03,8

38

1,2

15

- 1

,196

,623

1

,328

,475

Ot

hers

- -

- -

- -

- 8

1,91

9 8

1,91

9

Finan

cial in

vest

men

ts a

vaila

ble-

for-s

ale

Mala

ysian

Gov

ernm

ent S

ecur

ities

- -

- -

- -

198

,326

-

198

,326

Mala

ysian

Gov

ernm

ent I

nves

tmen

t Cer

tifica

tes

- -

- -

- -

282

,470

-

282

,470

Islam

ic co

rpor

ate

bond

s 5

9,43

6 -

- -

53,

814

238

,451

8

2,10

5 1

53,8

96

587

,702

Corp

orat

e bo

nds

- -

- -

29,

236

14,

940

84,

827

104

,783

2

33,7

86

Nego

tiabl

e in

stru

men

ts o

f dep

osits

- -

- -

- -

100

,000

-

100

,000

Bank

Neg

ara

Mon

etar

y Not

es -

- -

- -

- 2

97,2

40

- 2

97,2

40

Suku

k Pe

rum

ahan

Ker

ajaan

- -

- -

- -

9,9

02

- 9

,902

Unqu

oted

equ

ities

- -

- -

- -

- 4

90

490

Secu

rities

held

-to-m

atur

ity

Corp

orat

e bo

nds

5,0

02

- -

- -

- -

- 5

,002

Islam

ic co

rpor

ate

bond

s 5

,003

-

- -

- -

- -

5,0

03

Othe

r ass

ets

- -

- -

- -

- 6

6,56

5 6

6,56

5

70,

397

39,

214

- -

210

,022

2

54,6

06

2,57

9,87

9 2,

120,

990

5,27

5,10

8


FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(a)

Cre

dit

ris

k (c

ont

’d.)

Co

mp

any

Ind

ustr

y an

alys

is a

s at

31

Dec

emb

er 2

015

Prim

ary

agr

icultu

re

RM

’000

Man

ufac

turin

g (i

ncl a

gri-b

ased

) R

M’0

00

Elec

tricit

y, g

as &

wat

er

sup

ply

RM

’000

Who

lesale

& re

tail t

rade

, a

nd h

otel

& re

stau

rant

R

M’0

00

R

eal e

stat

e R

M’0

00

Tran

spor

t, s

tora

ge a

nd

com

mun

icatio

ns

RM

’000

Finan

ce a

nd in

sura

nce

RM

’000

Oth

ers

RM

’000

Tota

l R

M’0

00

Fina

ncia

l ass

ets

Cash

and

ban

k ba

lance

s -

- -

- -

- 3

,347

-

3,3

47

Finan

cial a

sset

s he

ld-fo

r-tra

ding

Se

curit

ies q

uote

d in

Mala

ysia

- -

- -

- -

- 1

9,83

1 1

9,83

1

Othe

r Ass

ets

- -

- -

- -

- 4

83

483

- -

- -

- -

3,3

47

20,

314

23,

661

Co

mp

any

Ind

ustr

y an

alys

is a

s at

31

Dec

emb

er 2

014

Fi

nanc

ial a

sset

s

Cash

and

ban

k ba

lance

s -

- -

- -

- 9

,760

-

9,7

60

Finan

cial a

sset

s he

ld-fo

r-tra

ding

Se

curit

ies q

uote

d in

Mala

ysia

- -

- -

- -

- 1

6,78

1 1

6,78

1

Othe

r Ass

ets

-

-

-

-

-

-

-

10

10

-

-

-

-

-

-

9,7

60

16,

791

26,

551

K & N KENANGA


2015

FINANCIALS


4 8 . F I N A N C I A L R I S K M A N A G E M E N T ( C O N T ’ D . )

(a) Credit risk (cont’d.)

Collateral and Other Credit Enhancements

The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters.

The main types of collateral obtained are as follows:

(i) Cash; (ii) Charges over financial instruments; (iii) Securities; (iv) Charges over real estate properties, inventory and trade receivables;(v) Mortgages over properties; or (vi) Financial guarantees.

Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement, and monitors the market value of collateral obtained during its review of the adequacy of the allowance for impairment losses.

It is the Group’s policy to dispose of repossessed properties in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Group does not occupy repossessed properties for business use.

(i) Credit quality by class of financial assets as at 31 December 2015

Credit quality of financial assets neither past due nor impaired

The credit quality of financial assets is managed by using internal ratings which aim to reflect the relative ability of counterparties to fulfil, on time, their credit-related obligations, and is based on their current probability of default.

Internal rating

Strong credit profile Customers that have demonstrated superior stability in their operating and financial performance over the long-term, and whose debt servicing capacity is not significantly vulnerable to foreseeable events. This rating broadly corresponds to ratings “AAA” to “AA” of RAM and MARC respectively.

Satisfactory risk Customers that have consistently demonstrated sound operational and financial stability over the medium to long term, even though some may be susceptible to cyclical trends or variability in earnings. This rating broadly corresponds to ratings “A” to “BBB” of RAM and MARC respectively.

Substandard but not past due not impaired

Customers that have demonstrated some operational and financial instability, with variability and uncertainty in profitability and liquidity projected to continue over the short and possibly medium term. This rating broadly corresponds to ratings “BB” to “C” of RAM and MARC respectively.


FINANCIALS




(i) Credit quality by class of financial assets as at 31 December 2015 (cont’d.)

Neither past due nor impaired

Group

Strong credit profile

RM’000

Satisfactory

risk

RM’000

Sub- standard

RM’000

Non rated

RM’000

Past due but not

impaired

RM’000

Default/ Impaired

RM’000

*Individuallyimpaired

RM’000

Total

RM’000

Cash and bank balances 1,367,926 - - - - - - 1,367,926

Statutory deposit with Bank Negara Malaysia 120,753 - - - - - - 120,753

Financial assets held-for-trading

Malaysian Government Investment Certificates 57,373 - - - - - - 57,373

Islamic corporate bonds 49,889 - - - - - - 49,889

Securities quoted in Malaysia - - - 231,311 - - - 231,311

Net loans, advances and financing

Term loans - 374,879 49,604 - - - - 424,483

Share margin financing 1,392,248 2,915 2,277 - - 751 (192) 1,397,999

Others - 83,528 - 18,209 - 5,988 - 107,725

Financial investments available-for-sale

Malaysian Government Securities 131,390 - - - - - - 131,390



Islamic corporate bills 24,878 - - - - - - 24,878

Corporate bills 24,878 - - - - - - 24,878

Corporate bonds 653,717 - - - - - - 653,717

Bank Negara Monetary Notes 39,706 - - - - - - 39,706

Sukuk Perumahan Kerajaan 9,996 - - - - - - 9,996

Unquoted equities - - - 490 - - - 490

Financial instruments held-to-maturity

Corporate bonds 5,001 - - 30,001 - - - 35,002


Derivative financial assets - - - 2,910 - - - 2,910

Balances due from clients and brokers - 455,420 - - 117 19,021 (17,231) 457,327

Other assets 125,816 - - - 20,544 - - 146,360

Total 4,373,178 916,742 51,881 282,921 20,661 25,760 (17,423) 5,653,720

* Impaired loan/financing and outstanding balances due from clients and brokers are loan/financing and balances with arrears or are judgementally triggered as impaired.

K & N KENANGA


2015

FINANCIALS




(i) Credit quality by class of financial assets as at 31 December 2014

Credit quality of financial assets neither past due nor impaired

The credit quality of financial assets is managed by using internal ratings which aim to reflect the relative ability of counterparties to fulfil, on time, their credit-related obligations, and is based on their current probability of default.

Internal rating

Strong credit profile Customers that have demonstrated superior stability in their operating and financial performance over the long-term, and whose debt servicing capacity is not significantly vulnerable to foreseeable events. This rating broadly corresponds to ratings “AAA” to “AA” of RAM and MARC respectively.

Satisfactory risk Customers that have consistently demonstrated sound operational and financial stability over the medium to long term, even though some may be susceptible to cyclical trends or variability in earnings. This rating broadly corresponds to ratings “A” to “BBB” of RAM and MARC respectively.

Substandard but not past due not impaired

Customers that have demonstrated some operational and financial instability, with variability and uncertainty in profitability and liquidity projected to continue over the short and possibly medium term. This rating broadly corresponds to ratings “BB” to “C” of RAM and MARC respectively.


FINANCIALS




(i) Credit quality by class of financial assets as at 31 December 2014 (cont’d.)

Neither past due nor impaired

Group

Strong credit profile

RM’000

Satisfactory

risk RM’000

Sub- standard RM’000

Non rated

RM’000

Past due but not

impaired RM’000

Default/ Impaired RM’000

*Individuallyimpaired RM’000

Total RM’000

Cash and bank balances 1,019,129 - - - - - - 1,019,129

Statutory deposit with Bank Negara Malaysia 127,576 - - - - - - 127,576

Financial assets held-for-trading Shares and unit trust funds in Malaysia - - - 72,635 - - - 72,635

Net loans, advances and financing

Term loans - 171,914 23,134 203,573 - - - 398,621

Share margin financing 1,383,255 26,074 - - - 1,256 (191) 1,410,394

Others - - - 81,919 - - - 81,919

Financial investments available-for-sale

Malaysian Government Securities 198,326 - - - - - - 198,326



Corporate bills - - - - - - - -

Corporate bonds 233,786 - - - - - - 233,786

Negotiable instruments of deposits 100,000 - - - - - - 100,000

Bank Negara Monetary Notes 297,240 - - - - - - 297,240

Sukuk Perumahan Kerajaan 9,902 - - - - - - 9,902

Unquoted equities - - - 490 - - - 490

Financial instruments held-to-maturity

Corporate bonds 5,002 - - - - - - 5,002


Derivative financial assets - - - 44 - - - 44

Balances due from clients and brokers - 372,840 - - 1,767 28,512 (24,815) 378,304

Other assets 66,565 - - - - - - 66,565

Total 4,315,956 570,828 23,134 358,661 1,767 29,768 (25,006) 5,275,108

* Impaired loan/financing and outstanding balances due from clients and brokers are loan/financing and balances with arrears or are judgementally triggered as impaired.

K & N KENANGA


2015

FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(a)

Cre

dit

risk

(co

nt’d

.)

(i)

Cre

dit

qua

lity

by

clas

s o

f fina

ncia

l ass

ets

as a

t 31

Dec

emb

er 2

015

Nei

ther

pas

t due

nor

impa

ired

Com

pany

Str

ong

cred

it pr

ofile

R

M’0

00

Sat

isfa

ctor

y ris

k R

M’0

00

Sub

- st

anda

rd

RM

’000

Non

rat

ed

RM

’000

Pas

t due

bu

t not

im

paire

d R

M’0

00

Def

ault/

Im

paire

d R

M’0

00

*Indi

vidu

ally

im

paire

d R

M’0

00 T

otal

R

M’0

00

Cas

h an

d ba

nk b

alan

ces

3,3

47

-

-

-

-

-

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3,3

47

Fina

ncia

l ass

ets

he

ld-f

or-t

radi

ng

Sec

uriti

es q

uote

d

in M

alay

sia

-

-

-

19,

831

-

-

-

19,

831

Oth

er a

sset

s -

-

-

9

4

74

-

-

483

To

tal

3,3

47

-

-

19,

840

474

-

-

2

3,66

1

C

red

it q

ualit

y b

y cl

ass

of fi

nanc

ial a

sset

s as

at

31 D

ecem

ber

201

4

Nei

ther

pas

t due

nor

impa

ired

Com

pany

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ong

cred

it pr

ofile

R

M’0

00

Sat

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ctor

y ris

k R

M’0

00

Sub

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anda

rd

RM

’000

Non

rat

ed

RM

’000

Pas

t due

bu

t not

im

paire

d R

M’0

00

Def

ault/

Im

paire

d R

M’0

00

*Indi

vidu

ally

im

paire

d R

M’0

00 T

otal

R

M’0

00

Cas

h an

d ba

nk b

alan

ces

9,7

60

-

-

-

-

-

-

9,7

60

Fina

ncia

l ass

ets

he

ld-f

or-t

radi

ng

Sec

uriti

es q

uote

d

in M

alay

sia

-

-

-

16,

781

-

-

-

16,

781

Oth

er a

sset

s -

-

-

1

0 -

-

-

1

0 To

tal

9,7

60

-

-

16,

791

-

-

-

26,

551


FINANCIALS



(a) Credit risk management (cont’d.)

(ii) Credit risk exposure for each internal credit risk rating

Credit rating

Group Company

Total RM’000

Total RM’000

31 December 2015Strong AAA 4,024,437 3,347 AA 348,741 - Satisfactory A 647,493 - BBB 269,249 - SubstandardBB 51,881 - C - -DefaultD 28,998 - Non rated 282,921 19,831

5,653,720 23,178

31 December 2014Strong AAA 3,996,919 9,760 AA 319,037 - Satisfactory A 501,035 - BBB 69,793 - SubstandardBB 23,134 - C - - DefaultD 6,529 - Non rated 358,661 16,781

5,275,108 26,541

K & N KENANGA


2015

FINANCIALS



(a) Credit risk management (cont’d.)

(iii) Aging analysis of financial assets which are past due but not impaired

Less than 1 month RM’000

1 to 12 months RM’000

> 12 months RM’000

Total RM’000

Group

31 December 2015Balances due from clients and

brokers - 117 - 117 Other assets - 20,544 - 20,544 Total - 20,661 - 20,661

31 December 2014Balances due from clients and

brokers 1 1,766 - 1,767 Total 1 1,766 - 1,767

Less than 1 month RM’000

1 to 12 months RM’000

> 12 months RM’000

Total RM’000

Company

31 December 2015Other assets - 474 - 474

31 December 2014Other assets - - - -


FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(a)

Cre

dit

risk

(co

nt’d

.)

(iv)

Est

imat

ed v

alue

of c

olla

tera

l and

oth

er c

harg

es r

elat

ed t

o fi

nanc

ial a

sset

s th

at a

re p

ast

due

but

no

t im

pai

red

Gro

up

Cas

h an

d se

curit

ies

RM

’000

Rea

l es

tate

R

M’0

00

Oth

er

RM

’000

Tot

al v

alue

of

col

late

ral

RM

’000

Cre

dit

expo

sure

R

M’0

00

Uns

ecur

ed

port

ion

of

cred

it ex

posu

re

RM

’000

31 D

ecem

ber

201

5B

alan

ces

due

from

clie

nts

and

brok

ers

211

-

-

2

11

-

-

Oth

er a

sset

s -

-

-

-

2

0,54

4 2

0,54

4 2

11

-

-

211

2

0,54

4 2

0,54

4

31 D

ecem

ber

201

4B

alan

ces

due

from

clie

nts

and

brok

ers

261

-

-

2

61

-

-

261

-

-

2

61

-

-

K & N KENANGA


2015

FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(a)

Cre

dit

risk

man

agem

ent

(co

nt’d

.)

(v)

Est

imat

ed v

alue

of c

olla

tera

l and

oth

er c

harg

es r

elat

ed t

o fi

nanc

ial a

sset

s th

at a

re p

ast

due

and

ind

ivid

ually

imp

aire

d

Gro

up

Cas

h an

d se

curit

ies

RM

’000

Rea

l es

tate

R

M’0

00

Oth

er

RM

’000

Tot

al v

alue

of

col

late

ral

RM

’000

Cre

dit

expo

sure

R

M’0

00

Uns

ecur

ed

port

ion

of

cred

it e

xpos

ure

RM

’000

31 D

ecem

ber

201

5Lo

ans,

adv

ance

s an

d fin

anci

ng

Sha

re m

argi

n fin

anci

ng 1

,062

-

-

1

,062

2

,483

1

,421

B

alan

ces

due

from

clie

nts

and

brok

ers

5,9

54

-

-

5,9

54

-

-

7,0

16

-

-

7,0

16

2,4

83

1,4

21

31 D

ecem

ber

201

4Lo

ans,

adv

ance

s an

d fin

anci

ng

Sha

re m

argi

n fin

anci

ng 1

,062

-

-

1

,062

2

,568

1

,506

B

alan

ces

due

from

clie

nts

and

brok

ers

6,9

36

-

-

6,9

36

-

-

7,9

98

-

-

7,9

98

2,5

68

1,5

06


FINANCIALS



(b) Market risk

Market risk is the risk of loss arising from changes in prices of equity instruments and other financial instruments in the markets in which the Group operates. The Group also engages in bond proprietary trading to generate revenue in anticipation of changes in prices that may occur in the debt capital market.

The Group manages the risk of unfavourable price changes by cautious reviews of investments and collaterals held with continuous monitoring of their performance and risk profiles by qualified personnel.

(i) Interest rate risk

The Board established limits on the trading and non-trading interest rate gaps activities. In accordance with the Group’s policy, positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within the established limits.

The sensitivity of interest rate to the Profit & Loss (“P/L”) and Other Comprehensive Income (“OCI”)/Equity is the effect of the assumed changes in interest rates level on the P/L for the financial year, based on the financial assets and liabilities held as at the reporting date.

Interest rate sensitivity analysis

The Board has established limits on the trading and non-trading interest rate gaps for stipulated periods. In accordance with the Group’s policy, positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within the established limits.

The sensitivity of the statements of profit and loss and other comprehensive income and equity is the effect of the assumed changes in interest rates on the profit and loss for the financial year, based on the floating rate financial assets and financial liabilities held as at the reporting date.

K & N KENANGA


2015

FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(b)

Mar

ket

risk

(co

nt’d

.)

(i)

Inte

rest

rat

e ri

sk (c

ont

’d.)

Th

e fo

llow

ing

tabl

e de

mon

stra

tes

the

sens

itivi

ty t

o a

reas

onab

ly p

ossi

ble

chan

ge in

inte

rest

rat

es, w

ith a

ll ot

her

varia

bles

hel

d co

nsta

nt, o

f the

Gro

up’s

pr

ofit o

r los

s an

d eq

uity

.

Gro

up

1 m

onth

R

M’0

00

> 1

-3

mon

ths

RM

’000

> 3

-12

mon

ths

RM

’000

1

-5 y

ears

R

M’0

00

Ove

r 5

year

s R

M’0

00

Non

in

tere

st

sens

itive

R

M’0

00

Trad

ing

book

R

M’0

00

Tot

al

RM

’000

Inte

rest

ra

te

%

2015

Ass

ets

Cas

h an

d ba

nk b

alan

ces

968

,006

5

8,33

2 5

4,34

4 -

-

2

87,2

44

-

1,3

67,9

26

3.23

Fina

ncia

l ass

ets

held

-for-t

radi

ng -

-

-

-

1

07,2

62

-

231

,311

3

38,5

73

3.92

Fina

ncia

l inve

stm

ents

ava

ilabl

e-fo

r-sal

e -

5

9,73

5 5

5,02

8 5

14,3

96

620

,012

4

90

-

1,2

49,6

61

4.15

Fina

ncia

l inve

stm

ents

hel

d-to

-mat

urity

-

-

-

40,

003

-

-

-

40,

003

5.45

Der

ivat

ive

finan

cial

ass

ets

-

-

-

-

-

2,9

10

-

2,9

10

-

Loan

s, a

dvan

ces

and

finan

cing

1,5

10,7

24

31,

703

207

,404

1

80,2

33

-

-

-

1,9

30,0

64

7.05

Bal

ance

s du

e fro

m c

lient

s an

d br

oker

s -

-

-

-

-

4

57,3

27

-

457

,327

-

Oth

er a

sset

s -

-

-

-

-

2

25,9

65

-

225

,965

-

Oth

er n

on in

tere

st s

ensi

tive

bala

nces

-

-

-

-

-

508

,376

-

5

08,3

76

-

Tota

l ass

ets

2,4

78,7

30

149

,770

3

16,7

76

734

,632

7

27,2

74

1,4

82,3

12

231

,311

6

,120

,805

Liab

ilitie

s

Dep

osits

from

cus

tom

ers

2,45

7,02

567

4,10

397

,937

-

-

-

-

3,2

29,0

65

3.68

Dep

osits

and

pla

cem

ent o

f ban

ks a

nd o

ther

fin

anci

al in

stitu

tions

575

,159

-

-

-

-

-

-

5

75,1

59

3.68

Bor

row

ings

-

27,

000

114

,000

-

-

-

-

1

41,0

00

5.40

Obl

igat

ions

on

secu

ritie

s so

ld u

nder

re

purc

hase

agr

eem

ents

48,

058

47,

252

-

-

-

-

-

95,

310

-

Der

ivat

ive

finan

cial

liabi

litie

s -

-

-

-

-

7

2,27

8 -

7

2,27

8 -

Bal

ance

s du

e to

clie

nts

and

brok

ers

-

-

-

-

-

896

,302

-

8

96,3

02

-

Oth

er n

on in

tere

st s

ensi

tive

bala

nces

-

-

-

-

-

246

,960

-

2

46,9

60

-

Tota

l lia

bilit

ies

3,0

80,2

42

748

,355

2

11,9

37

-

-

1,2

15,5

40

-

5,2

56,0

74

Equi

ty -

-

-

-

-

8

54,9

82

-

854

,982

Non

-con

trollin

g in

tere

st -

-

-

-

-

9

,749

-

9

,749

Tota

l lia

bilit

ies

and

equi

ty 3

,080

,242

7

48,3

55

211

,937

-

-

2

,080

,271

-

6

,120

,805

On-

bala

nce

shee

t int

eres

t sen

sitiv

ity g

ap (6

01,5

12)

(598

,585

) 1

04,8

39

734

,632

7

27,2

74

(597

,959

) 2

31,3

11

-

Cum

ulat

ive

inte

rest

sen

sitiv

ity g

ap (6

01,5

12)

(1,2

00,0

97)

(1,0

95,2

58)

(360

,626

) 3

66,6

48

(231

,311

) -

-


FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(b)

Mar

ket

risk

(co

nt’d

.)

(i)

Inte

rest

rat

e ri

sk (c

ont

’d.)

Gro

up

1 m

onth

R

M’0

00

> 1

-3

mon

ths

RM

’000

> 3

-12

mon

ths

RM

’000

1

-5 y

ears

R

M’0

00

Ove

r 5

year

s R

M’0

00

Non

in

tere

st

sens

itive

R

M’0

00

Trad

ing

book

R

M’0

00

Tota

l R

M’0

00

Inte

rest

ra

te

%

2014

Ass

ets

Cas

h an

d ba

nk b

alan

ces

701

,289

1

47,5

73

-

-

-

170

,267

-

1

,019

,129

3.

18

Fina

ncia

l ass

ets

held

-for-t

radi

ng -

-

-

-

-

-

7

2,63

5 7

2,63

5 3.

64

Fina

ncia

l inve

stm

ents

ava

ilabl

e-fo

r-sal

e 1

00,0

00

149

,277

2

67,7

91

374

,488

8

17,8

70

490

-

1

,709

,916

3.

81

Fina

ncia

l inve

stm

ents

hel

d-fo

r-mat

urity

-

-

-

10,

005

-

-

-

10,

005

4.75

Der

ivat

ive

finan

cial

ass

ets

-

-

-

-

-

44

-

44

-

Loan

s, a

dvan

ces

and

finan

cing

1,4

34,1

74

87,

099

146

,597

2

22,8

98

-

-

-

1,8

90,7

68

6.83

Bal

ance

s du

e fro

m c

lient

s an

d br

oker

s -

-

-

-

-

3

78,3

04

-

378

,304

-

Oth

er a

sset

s 5

1,88

4 -

-

-

-

7

0,89

2 -

1

22,7

76

-

Oth

er n

on in

tere

st s

ensi

tive

bala

nces

-

-

-

-

-

526

,468

-

5

26,4

68

-

Tota

l ass

ets

2,2

87,3

47

383

,949

4

14,3

88

607

,391

8

17,8

70

1,1

46,4

65

72,

635

5,7

30,0

45

Liab

ilitie

s

Dep

osits

from

cus

tom

ers

2,4

21,4

01

629

,790

4

1,42

0 -

-

-

-

3

,092

,611

3.

39

Dep

osits

and

pla

cem

ent o

f ban

ks a

nd o

ther

finan

cial

inst

itutio

ns 6

70,0

54

-

18,

000

-

-

-

-

688

,054

3.

39

Bor

row

ings

52,

336

-

50,

000

50,

000

-

-

-

152

,336

5.

46

Bal

ance

s du

e to

clie

nts

and

brok

ers

-

-

-

-

-

744

,762

-

7

44,7

62

-

Oth

er n

on in

tere

st s

ensi

tive

bala

nces

-

-

-

-

-

189

,108

-

1

89,1

08

-

Tota

l lia

bilit

ies

3,1

43,7

91

629

,790

1

09,4

20

50,

000

-

933

,870

-

4

,866

,871

Equi

ty -

-

-

-

-

8

54,5

82

-

854

,582

Non

-con

trollin

g in

tere

st -

-

-

-

-

8

,592

-

8

,592

Tota

l lia

bilit

ies

and

equi

ty 3

,143

,791

6

29,7

90

109

,420

5

0,00

0 -

1

,797

,044

-

5

,730

,045

On-

bala

nce

shee

t int

eres

t sen

sitiv

ity g

ap (8

56,4

44)

(245

,841

) 3

04,9

68

557

,391

8

17,8

70

(650

,579

) 7

2,63

5 -

Cum

ulat

ive

inte

rest

sen

sitiv

ity g

ap (8

56,4

44)

(1,1

02,2

85)

(797

,317

) (2

39,9

26)

577

,944

(7

2,63

5) -

-

K & N KENANGA


2015

FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(b)

Mar

ket

risk

(co

nt’d

.)

(i)

Inte

rest

rat

e ri

sk (c

ont

’d.)

Com

pany

Up

to

1 m

onth

R

M’0

00

> 1

-3

mon

ths

RM

’000

> 3

-12

mon

ths

RM

’000

1-5

yea

rs

RM

’000

Ove

r 5

year

s R

M’0

00

Non

inte

rest

se

nsiti

ve

RM

’000

Trad

ing

boo

k R

M’0

00 T

otal

R

M’0

00

Effe

ctiv

e in

tere

st

rate

%

2015

Ass

ets

Cas

h an

d ba

nk b

alan

ces

3,3

47

-

-

-

-

-

-

3,3

47

3.20

Fina

ncia

l ass

ets

held

-for

-tra

ding

-

-

-

-

-

-

19,

831

19,

831

-

Oth

er a

sset

s -

-

-

-

-

6

7,72

6 -

6

7,72

6 -

Oth

er n

on in

tere

st s

ensi

tive

bala

nces

-

-

-

-

-

770

,358

-

7

70,3

58

-

Tota

l ass

et 3

,347

-

-

-

-

8

38,0

84

19,

831

861

,262

Liab

iliti

es

Bor

row

ings

-

-

110

,000

-

-

-

-

1

10,0

00

4.69

Oth

er n

on in

tere

st s

ensi

tive

bala

nces

-

-

-

-

-

7,4

09

-

7,4

09

-

Tota

l lia

bili

ties

-

-

110

,000

-

-

7

,409

-

1

17,4

09

Equ

ity -

-

-

-

-

7

43,8

53

-

743

,853

Tota

l lia

bili

ties

and

eq

uity

-

-

110

,000

-

-

7

51,2

62

-

861

,262

On-

bala

nce

shee

t int

eres

t sen

sitiv

ity g

ap 3

,347

-

(1

10,0

00)

-

-

86,

822

19,

831

-

Tota

l cum

ulat

ive

inte

rest

sen

siti

vity

gap

3,3

47

3,3

47

(106

,653

) (1

06,6

53)

(106

,653

) (1

9,83

1) -

-


FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(b)

Mar

ket

risk

(co

nt’d

.)

(i)

Inte

rest

rat

e ri

sk (c

ont

’d.)

Com

pany

Up

to

1 m

onth

R

M’0

00

> 1

-3

mon

ths

RM

’000

> 3

-12

mon

ths

RM

’000

1-5

yea

rs

RM

’000

Ove

r 5

year

s R

M’0

00

Non

inte

rest

se

nsiti

ve

RM

’000

Trad

ing

boo

k R

M’0

00 T

otal

R

M’0

00

Effe

ctiv

e in

tere

st r

ate %

2014

Ass

ets

Cas

h an

d ba

nk b

alan

ces

9,7

60

-

-

-

-

-

-

9,7

60

3.14

Fina

ncia

l ass

ets

held

-for

-tra

ding

-

-

-

-

-

-

16,7

8116

,781

-

Oth

er a

sset

s -

-

-

-

-

92

,424

-

92,4

24 -

Oth

er n

on in

tere

st s

ensi

tive

bala

nces

-

-

-

-

-

770,

122

-

770,

122

-

Tota

l ass

ets

9,7

60

-

-

-

-

862,

546

16,7

8188

9,08

7

Liab

iliti

es

Bor

row

ings

-

-

50,

000

50,

000

-

-

-

100

,000

4.

83

Oth

er n

on in

tere

st s

ensi

tive

bala

nces

-

-

-

-

-

33,7

67 -

33

,767

-

Tota

l lia

bili

ties

-

-

50,

000

50,

000

-

33,7

67 -

13

3,76

7

Equ

ity -

-

-

-

-

75

5,32

0 -

75

5,32

0

Tota

l lia

bili

ties

and

eq

uity

-

-

50,

000

50,

000

-

789,

087

-

889,

087

On-

bala

nce

shee

t int

eres

t sen

sitiv

ity g

ap 9

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(5

0,00

0) (5

0,00

0) -

73

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16,

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-

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l cum

ulat

ive

inte

rest

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siti

vity

gap

9,7

60

9,7

60

(40,

240)

(90,

240)

(90,

240)

(16,

781)

--

K & N KENANGA


2015

FINANCIALS



(b) Market risk (cont’d.)

(i) Interest rate risk (cont’d.)

The following table demonstrates the impact of a +/- 100 basis points change in interest rates, ceteris paribus, on the Group’s profit or loss and equity.

Change in Interest Rates

2015

Impact on Profit or Loss

2015 RM’000

Impact on Equity

2015 RM’000

Change in Interest Rates

2014


2014 RM’000

Impact on Equity 2014

RM’000

+100 bps (6,646) (61,027) +100 bps (5,236) (71,229)-100 bps 6,646 61,027 -100 bps 5,236 71,229

(ii) Foreign currency exchange risk

Currency risk is the risk of financial loss due to adverse movements in foreign exchange rates.

The Group is exposed to currency risk primarily through trading activities that are governed by the Foreign Exchange Risk Management Policy.

Currency rate sensitivity analysis

The following table shows the impact of a 5% depreciation in MYR, ceteris paribus, on the Group’s profit or loss:

Currency

Changes in Foreign Exchange

Rates

Impact on Profit or

Loss 2015

RM’000


RM’000

Movement in

Exchange Rates

Impact on Profit or

Loss 2014

RM’000


RM’000

AUD 5% 3 3 5% 18 18CHF 5% - - 5% - - CNY 5% - - 5% - - EUR 5% (15) (15) 5% (8) (8)GBP 5% (11) (11) 5% - - HKD 5% 12 12 5% - - IDR 5% - - 5% 1 1JPY 5% 9 9 5% (3) (3)NZD 5% 3 3 5% - - PHP 5% - - 5% 1 1SGD 5% 375 375 5% - - THB 5% 14 14 5% - - USD 5% (300) (300) 5% 101 101


FINANCIALS




(ii) Foreign currency exchange risk (cont’d.)

Arising from the Group’s investment in the associate companies in Saudi Arabia and Sri Lanka, there are natural position held in foreign currencies exposures in Riyal and Rupee respectively. The following shows the profit or loss impact of a 5% price movement on these position:

Currency

Changes in Foreign Exchange

Rates

Impact on Profit or

Loss 2015

RM’000


RM’000

Movement in

Exchange Rates

Impact on Profit or

Loss 2014

RM’000


RM’000

SAR 5% - (3,281) 5% - (2,899)LKR 5% - (61) 5% - (62)

(iii) Equity price sensitivity analysis

Equity price risk is the risk of financial loss arising from adverse changes in prices of equities and/or equity derivatives.

The following table demonstrates the impact of a +/- 30% change in equity prices on the Group’s profit or loss covering across the equity and equity derivatives trading activities.

Percentage Change in

Equity Price 2015

Impact on Profit or

Loss 2015

RM’000


RM’000


Equity Price 2014

Impact on Profit or

Loss 2014

RM’000


RM’000

+30% 65,570 - +30% 1,616 - -30% (49,083) - -30% (11,281) -

From risk management perspective, a risk limits framework governing the activities of equity and equity derivatives trading has been established, primarily intended to:

(1) Prevent excessive exposures to a single risk factor or a group of risk factors.(2) Constrain the general level of risk taking for a business.

Additionally, other components of limit framework including loss trigger, issuance size, permitted products, management oversights etc. were put in place for better governance as well as to embrace best practices of market risk management. The risk framework was designed in accordance to the Group’s risk appetite and a closely controlled risk parameter, e.g. loss trigger, will ensure losses arising from the course of trading are limited.

K & N KENANGA


2015

FINANCIALS




(iii) Equity price sensitivity analysis (cont’d.)

In addition, the Group through its associate company has equity investments in Saudi Arabia.

The impact of a +/- 30% change in equity prices on the Group’s profit or loss arising from these investments are shown as follows:


Equity Price 2015


2015 RM’000

Impact on Equity

2015 RM’000


Equity Price 2014


2014 RM’000

Impact on Equity

2014 RM’000

+30% - 8,393 +30% - 8,397 -30% - (8,393) -30% - (8,397)

(c) Liquidity risk

Liquidity risk is the risk of loss as a result of the Group’s or the Company’s inability to meet cash flow obligations on a timely and cost effective manner. Liquidity risk is managed through the Liquidity Coverage Ratio Framework (“LCR”) issued by BNM, internal policies and management oversight by ALCO. A Contingency Funding Plan (“CFP”) was formulated covering across the policies, procedures, roles and responsibilties, funding strategies and notwithstanding, the deployment of such in a liquidity event.

The Group actively manages its operating cash flows and the availability of funding so as to ensure that all funding needs are met. As part of its overall prudent liquidity management, the Group maintains sufficient levels of cash or cash convertible investments to meet its working capital requirements in addition to maintaining available banking facilities, to meet any immediate operating cash flow requirements.

In accordance with BNM’s LCR Framework, the Group/Company maintains a portfolio of highly marketable and diverse assets that assumed to be easily liquidated in the event of an unforeseen interruption of cash flow. In addition, the Group maintains a statutory deposit with BNM equal to 4% of its eligible liabilities.

The Group stresses the importance of stable funding source to finance lending to customers. They are monitored using the advances to deposit ratio, which compares loans and advances to customers as a percentage of customer deposits, together with term funding with a remaining term to maturity in excess of one year.

Liquidity ratios

Loans to deposit ratios 2015 2014

Year-end 48% 50%Maximum 51% 53%Minimum 45% 42%Average 48% 49%


FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(c)

Liq

uid

ity r

isk

(co

nt’d

.)

(i)

Ana

lysi

s o

f ass

ets

and

liab

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s b

y re

mai

ning

co

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ctua

l mat

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Gro

up

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dem

and

RM

’000

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m

onth

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1 y

ear

RM

’000

Ove

r 5

year

s R

M’0

00

Non

-sp

ecific

m

atur

ity

RM

’000

Tot

al

RM

’000

2015

Ass

ets

Cas

h an

d ba

nk b

alan

ces

284

,973

9

68,1

20

114

,833

-

-

-

-

-

1

,367

,926

Fina

ncia

l ass

ets

held

-for-t

radi

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-

-

-

-

1

07,2

62

-

231

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3

38,5

73

Fina

ncia

l inve

stm

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ava

ilabl

e-fo

r-sal

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-

5

9,73

5 -

5

5,02

8 1

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-

4

90

1,2

49,6

61

Fina

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ents

hel

d-to

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-

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003

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ivat

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finan

cial

ass

ets

-

41

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2,8

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s, a

dvan

ces

and

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cing

38,

178

1,4

72,5

45

31,

703

39,

716

167

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1

80,2

33

-

-

1,9

30,0

64

Bal

ance

s du

e fro

m c

lient

s an

d br

oker

s -

4

57,3

27

-

-

-

-

-

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457

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s 1

51

122

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7

7,86

6 1

74

541

1

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1

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66

Oth

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-

-

5

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508

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Tota

l ass

ets

323

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3

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2

84,1

37

39,

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226

,127

1

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-

7

53,7

09

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05

Liab

ilitie

s

Dep

osits

from

cus

tom

ers

-

2,4

57,0

25

676

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8

9,92

2 6

,000

-

-

-

3

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,065

Dep

osits

and

pla

cem

ents

of b

anks

and

ot

her fi

nanc

ial in

stitu

tions

-

575

,159

-

-

-

-

-

-

5

75,1

59

Obl

igat

ions

on

secu

ritie

s so

ld u

nder

re

purc

hase

agr

eem

ents

-

48,

058

47,

252

-

-

-

-

-

95,

310

Der

ivat

ive

finan

cial

liabi

litie

s -

3

2,61

7 5

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-

3

4,19

6 -

-

-

7

2,27

8

Bor

row

ings

-

27,

000

-

69,

000

45,

000

-

-

-

141

,000

Bal

ance

due

to c

lient

s an

d br

oker

s -

8

96,3

02

-

-

-

-

-

-

896

,302

Oth

er lia

bilit

ies

bala

nces

-

55,

741

4,8

89

261

1

5 -

-

1

86,0

54

246

,960

Tota

l lia

bilit

ies

-

4,0

91,9

02

733

,724

1

59,1

83

85,

211

-

-

186

,054

5

,256

,074

Net

mat

urity

mis

mat

ch 3

23,3

02

(1,0

71,8

27)

(449

,587

) (1

19,2

93)

140

,916

1

,473

,565

-

5

67,6

55

864

,731

K & N KENANGA


2015

FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(c)

Liq

uid

ity r

isk

(co

nt’d

.)

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lysi

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f ass

ets

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liab

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y re

mai

ning

co

ntra

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uriti

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ont

’d.)

Th

e ta

ble

belo

w s

how

s th

e co

ntra

ctua

l exp

iry b

y m

atur

ity o

f th

e G

roup

’s c

ontin

gent

liab

ilitie

s an

d co

mm

itmen

ts.

Each

und

raw

n lo

an c

omm

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in

clud

ed in

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time

band

con

tain

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the

earli

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it ca

n be

dra

wn

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n.

On

dem

and

RM

’000

Up

to 1

m

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R

M’0

00

> 1

to 3

m

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s R

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00

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m

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00

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s R

M’0

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> 1

yea

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M’0

00

Ove

r 5

year

s R

M’0

00

Tota

l R

M’0

00

2015

Mis

cella

neou

s co

mm

itmen

ts 5

97,6

65

-

-

-

-

-

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597

,665

To

tal c

om

mit

men

ts a

nd

gua

rant

ees

597

,665

-

-

-

-

-

-

5

97,6

65


FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(c)

Liq

uid

ity r

isk

(co

nt’d

.)

(i)

Ana

lysi

s o

f ass

ets

and

liab

ilitie

s b

y re

mai

ning

co

ntra

ctua

l mat

uriti

es (c

ont

’d.)

Gro

up

On

dem

and

RM

’000

Up

to 1

m

onth

R

M’0

00

> 1

to 3

m

onth

s R

M’0

00

> 3

to 6

m

onth

s R

M’0

00

> 6

to 1

2 m

onth

s R

M’0

00

> 1

yea

r R

M’0

00

Ove

r 5

year

s R

M’0

00

Non

-sp

ecific

m

atur

ity

RM

’000

To

tal

RM

’000

2014

Ass

ets

Cas

h an

d ba

nk b

alan

ces

170

,267

7

01,2

89

147

,573

-

-

-

-

-

1

,019

,129

Fina

ncia

l ass

ets

held

-for-t

radi

ng -

-

-

-

-

-

-

72,6

3572

,635

Fina

ncia

l inve

stm

ents

ava

ilabl

e-fo

r-sal

e -

1

00,0

00

149

,276

2

57,7

92

9,9

99

1,1

92,3

59

-

490

1

,709

,916

Fina

ncia

l inve

stm

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hel

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-mat

urity

-

-

-

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10,

005

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Der

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cial

ass

ets

-

-

44

-

-

-

-

-

44

Loan

s, a

dvan

ces

and

finan

cing

-

1,4

34,1

74

87,

098

55,

887

58,

856

254

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-

-

1

,890

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Bal

ance

s du

e fro

m c

lient

s an

d br

oker

s -

3

78,3

04

-

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-

-

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378

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Oth

er a

sset

s -

9

1,25

4 5

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2

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5

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2

3,63

5 1

22,7

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Oth

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lanc

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-

-

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-

-

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52

6,46

852

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8

Tota

l ass

ets

170

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2

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3

89,5

78

315

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6

8,90

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-

62

3,22

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730,

045

Liab

ilitie

s

Dep

osits

from

cus

tom

ers

-

2,4

21,4

01

629

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3

0,63

9 1

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1 -

-

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3

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Dep

osits

and

pla

cem

ents

of b

anks

and

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her fi

nanc

ial in

stitu

tions

-

670

,054

-

1

8,00

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-

-

-

6

88,0

54

Bor

row

ings

-

52,

336

-

-

50,

000

50,

000

-

-

152

,336

Bal

ance

s du

e to

clie

nts

and

brok

ers

-

744

,762

-

-

-

-

-

-

7

44,7

62

Oth

er lia

bilit

ies

bala

nces

-

5,8

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4,5

22

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56

1,1

17

-

-

170

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1

89,1

08

Tota

l lia

bilit

ies

-

3,8

94,4

00

634

,312

5

5,49

5 6

1,89

8 5

0,00

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1

70,7

66

4,8

66,8

71

Net

mat

urity

mis

mat

ch 1

70,2

67

(1,1

89,3

79)

(244

,734

) 2

60,4

33

7,0

08

1,4

07,1

17

-

452,

462

863,

174

K & N KENANGA


2015

FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(c)

Liq

uid

ity r

isk

(co

nt’d

.)

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Ana

lysi

s o

f ass

ets

and

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ilitie

s b

y re

mai

ning

co

ntra

ctua

l mat

uriti

es (c

ont

’d.)

Th

e ta

ble

belo

w s

how

s th

e co

ntra

ctua

l exp

iry b

y m

atur

ity o

f th

e G

roup

’s c

ontin

gent

liab

ilitie

s an

d co

mm

itmen

ts.

Each

und

raw

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itmen

t is

in

clud

ed in

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time

band

con

tain

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the

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On

dem

and

RM

’000

Up

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> 1

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Ove

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Tota

l R

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00

2014

Mis

cella

neou

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itmen

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54,1

23

-

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-

-

-

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554

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To

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om

mit

men

ts a

nd

gua

rant

ees

554

,123

-

-

-

-

-

-

5

54,1

23


FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(c)

Liq

uid

ity r

isk

(co

nt’d

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ning

co

ntra

ctua

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uriti

es (c

ont

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Com

pany

On

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and

RM

’000

Up

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mon

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> 1

to 3

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onth

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Ove

r 5

year

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Non

-sp

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atur

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RM

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Tot

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2015

Ass

ets

Cas

h an

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1,3

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1,9

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47

Fina

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l ass

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held

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ding

-

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831

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831

Oth

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sset

s 6

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1

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6

7,72

6 O

ther

ass

ets

bala

nces

-

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-

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-

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770

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7

70,3

58

Tota

l ass

ets

67,

310

1,9

85

-

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-

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791

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8

61,2

62

Liab

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orro

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gs -

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6

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Oth

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abilit

ies

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880

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6

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7

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To

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iab

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117

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Net

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05

-

(65,

000)

(45,

000)

-

-

785

,438

7

43,8

53

K & N KENANGA


2015

FINANCIALS


48

. F

INA

NC

IAL

RIS

K M

AN

AG

EM

EN

T (

CO

NT

’D.)

(c)

Liq

uid

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FINANCIALS


48

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2015

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K & N KENANGA


2015

FINANCIALS


48

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139

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FINANCIALS



(d) Operational risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or resulting from external events.

Operational risk is managed through an effective operational risk management framework which include development of policies, processes and procedures for managing operational risk in the Group’s and the investment banking subsidiary’s products, activities, processes and system, effective internal audit function, monitoring and reporting by independent risk management function and oversight by the management and Board of Directors.

The operational risk management processes include identifying and assessing operational risks inherent in the Group’s existing as well as new products, activities, processes and systems, monitoring of operational risk profiles and reporting of material exposures, documented policies, processes and procedures to control and mitigate material operational risks and contingency and business continuity plans.

4 9 . F A I R V A L U E O F F I N A N C I A L I N S T R U M E N T S

(a) Fair value measurements

The Group and the Company use the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1 – quoted (unadjusted) market prices in active markets for identical assets or liabilities;

Level 2 – other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

Level 3 – techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

K & N KENANGA


2015

FINANCIALS


4 9 . F A I R V A L U E O F F I N A N C I A L I N S T R U M E N T S ( C O N T ’ D . )

(a) Fair value measurements (cont’d.)

Group Level 1 RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

2015

Financial assets measured at fair value

Financial assets held-for-trading- Debt securities - 107,262 - 107,262 - Equity securities and unit trusts 220,136 11,175 - 231,311 Financial investments available-for-sale #

- Debt securities - 1,249,171 - 1,249,171 Derivative financial assets - 2,910 - 2,910

Financial assets for which fair values are disclosed

Financial instruments held-to-maturity - 39,922 - 39,922 Loans, advances and financing - - 1,926,827 1,926,827

220,136 1,410,440 1,926,827 3,557,403

Financial liabilities measured at fair value

Derivatives financial liabilities 45,688 26,590 - 72,278 Obligations on securities sold under

repurchase agreements - 95,310 - 95,310 Borrowings - 141,000 - 141,000

45,688 262,900 - 308,588


FINANCIALS




Group Level 1 RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

2014


Financial assets held-for-trading- Equity securities and unit trusts 72,635 - - 72,635Financial investments available-for-sale #

- Debt securities - 1,609,426 - 1,609,426- Negotiable Instruments of Deposits - 100,000 - 100,000Derivative financial assets - 44 - 44

Financial assets for which fair values are disclosed

Financial instruments held-to-maturity - 9,908 - 9,908Loans, advances and financing - - 1,886,697 1,886,697

72,635 1,719,378 1,886,697 3,678,710


Derivatives financial liabilities 7,193 44 - 7,237 Obligations on securities sold under

repurchase agreements - - - - Borrowings - 152,336 - 152,336

7,193 152,380 - 159,573

K & N KENANGA


2015

FINANCIALS




Company Level 1 RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

2015


Financial assets held-for-trading- Equity securities and unit trusts 19,831 - - 19,831

19,831 - - 19,831


Borrowings - 110,000 - 110,000 - 110,000 - 110,000

2014


Financial assets held-for-trading- Equity securities and unit trusts 16,781 - - 16,781

16,781 - - 16,781


Borrowings - 100,000 - 100,000 - 100,000 - 100,000

# Excludes unquoted securities stated at cost of RM490,000 (2014: RM490,000).

There have been no transfers between Level 1 and Level 2 during the period.

The methods and assumptions used to estimate the fair value of the financial instruments not measured at fair value are as disclosed in Note 47.


FINANCIALS


5 0 . O P E R A T I O N S O F I S L A M I C B A N K I N G

The Islamic banking operations of the investment banking subsidiary are as follows:

(a) Statement of financial position as at 31 December 2015

Group

Note 2015

RM’000 2014

RM’000

AssetsCash and bank balances (e) 115,437 180,951 Financial investments held-for-trading (f) 78,576 - Financial investments available-for-sale (g) 194,630 229,640 Financial investments held-to-maturity (h) 5,001 5,003 Advances and financing (i) 59,150 23,043 Other assets (j) 1,730 2,832 Property, plant and equipment 14 235 Deferred tax assets 157 - Total assets 454,695 441,704

LiabilitiesDeposits from customers (k) 272,367 331,785 Other liabilities (l) 55,012 4,695 Deferred tax liabilities - 889 Provision for taxation and zakat 1,963 890 Total liabilities 329,342 338,259

Islamic banking capital fundsIslamic banking funds 120,000 100,000 Reserves 5,353 3,445 Total Islamic banking capital funds 125,353 103,445

Total liabilities and Islamic banking funds 454,695 441,704

K & N KENANGA


2015

FINANCIALS


5 0 . O P E R A T I O N S O F I S L A M I C B A N K I N G ( C O N T ’ D . )

(b) Statements of profit or loss and other comprehensive income For the financial year ended 31 December 2015

Group

Note2015

RM’000 2014

RM’000

Income derived from investment of depositors’ funds and others (m) 26,184 17,149 Total attributable income 26,184 17,149 Income attributable to the depositors (n) (16,741) (11,748)Income attributable to the Group 9,443 5,401 Other operating expenses (o) (2,363) (2,209)Impairment allowances on financing (46) (62)Profit before tax expense 7,034 3,130 Income tax expense (1,787) (812)Zakat (176) (78)Profit after tax expense 5,071 2,240

Net income from Islamic banking operations reported in group-wide profit or loss 9,443 5,401


FINANCIALS



(c) Statement of cash flows For the financial year ended 31 December 2015

Group

2015 RM’000

2014 RM’000

Cash flows from operating activitiesProfit before zakat and tax 7,034 3,130 Adjustments for: Depreciation of plant and equipment (Note 50 (o)(ii)) 3 56 Impairment allowances on financing 46 62 Operating profit before working capital changes 7,083 3,248 Changes in operating assets:Financial investments held-for-trading (78,576) - Financial investments available-for-sale 30,801 (93,092)Financial investments held-to-maturity 2 - Advances and financing (36,153) (23,105)Other assets 881 (501)Changes in operating liabilities:Deposits from customers (39,418) 90,647 Other liabilities 29,866 1,630 Net cash used in operating activities (85,514) (21,173)

Cash flow from financing activityInjection of funds for Islamic banking, representing net cash

generated from financing activity 20,000 20,000

Net change in cash and cash equivalents (65,514) (1,173)Cash and cash equivalents at beginning of financial year 180,951 182,124 Cash and cash equivalents at end of financial year 115,437 180,951

K & N KENANGA


2015

FINANCIALS



(d) Statement of changes in Islamic Banking fund For the financial year ended 31 December 2015

Non-Distributable Distributable

Group

Islamic Banking

fund RM’000

Available-for-sale reserve

RM’000

Regulatory Reserve RM’000

Retained Profits

RM’000Total

RM’000

At 1 January 2015 100,000 2,666 - 779 103,445 Injection of funds for Islamic banking 20,000 - - - 20,000 Profit for the financial year - - - 5,071 5,071 Other comprehensive income - (3,163) - - (3,163)Transfer to regulatory reserve - - 602 (602) - At 31 December 2015 120,000 (497) 602 5,248 125,353

At 1 January 2014 80,000 (2,778) - (1,461) 75,761 Injection of funds for Islamic banking 20,000 - - - 20,000 Profit for the financial year - - - 2,240 2,240 Other comprehensive income - 5,444 - - 5,444 At 31 December 2014 100,000 2,666 - 779 103,445

(e) Cash and bank balances

Group

2015 RM’000

2014 RM’000

Current account with BNM and banks 21,117 161 Money at call and deposit placements with: Licensed investment banks 94,320 180,790

115,437 180,951


FINANCIALS



(f) Financial assets held-for-trading

Group

2015 RM’000

2014RM’000

At fair valueMoney market instrumentsMalaysian Government Investment Certificates 28,687 -

Unquoted securities:Islamic Corporate Bonds 49,889 -

78,576 -

(g) Financial investments available-for-sale

Group

2015 RM’000

2014 RM’000

At fair valueUnquoted Islamic debt securities in Malaysia Islamic corporate bonds 194,630 229,640

(h) Financial investments held-to-maturity

Group

2015 RM’000

2014 RM’000

At amortised costUnquoted Islamic debt securities in Malaysia Islamic corporate bonds 5,001 5,003

The maturity structure of above securities are as follows:Two to five years 5,001 5,003

K & N KENANGA


2015

FINANCIALS



(i) Advances and financing

Group

2015 RM’000

2014 RM’000

Commodity Murabahah revolving credit 14,122 8,051 Commodity Murabahah term financing 45,137 15,054

59,259 23,105 Allowance for impairment:- Collective allowance (109) (62)Net financing and advances 59,150 23,043

(i) Gross financing and advances analysed by type of customer are as follows:Domestic business enterprises- Others 59,259 23,105

(ii) Gross financing and advances analysed by geographical distribution are as follows:

In Malaysia 59,259 23,105

(iii) Gross financing and advances analysed by profit are sensitivity are as follows:Variable rate- Cost plus 59,259 23,105

(iv) Gross financing and advances analysed by economic purpose are as follows:Purchase of securities 45,137 15,054 Working capital 14,122 8,051

59,259 23,105

(v) Gross financing and advances analysed by residual contractual maturity are as follows:

Within one year 59,259 23,105

(j) Other assets

Group

2015 RM’000

2014 RM’000

Income receivable 1,728 2,830 Prepayment 2 2

1,730 2,832


FINANCIALS



(k) Deposits from customers

Group

2015 RM’000

2014 RM’000

(i) By type of deposit:

Mudharabah general deposits - 50,000 Commodity murabahah deposits 272,367 1,207 Wadiah deposits - 280,578

272,367 331,785

(ii) By type of customers:Business enterprises 272,367 331,785

(iii) By maturity:Due within six months 272,367 331,785

(l) Other liabilities

Group

2015 RM’000

2014 RM’000

Mudharabah Specific Investment Account 20,000 - Profit payable 330 123 Other payable 34,682 4,572

55,012 4,695

(m) Income derived from investment of depositors’ funds and others

Group

2015 RM’000

2014 RM’000

Finance income and hibahAdvances and financing 828 381 Deposits with financial institutions 7,758 10,219 Financial investments held-for-trading 1,391 86 Financial investments available-for-sale 10,651 6,034 Financial investments held-to-maturity 238 238 Accretion of discount (467) (467)

20,399 16,491

K & N KENANGA


2015

FINANCIALS



(m) Income derived from investment of depositors’ funds and others (cont’d.)

Group

2015 RM’000

2014 RM’000

Other operating incomeNet gain on sale of financial investments held-for-trading 336 72 Net gain on sale of financial investments available-for-sale 5,029 (219)Fees on financing and advances 506 342 Advisory fee 13 500 Direct trading fees (129) (37)Other non-operating income 30 -

5,785 658

26,184 17,149

(n) Income attributable to depositors and others

Group

2015 RM’000

2014 RM’000

Deposits from customers and financial institutions- Mudharabah fund 13,473 11,748 Others 3,268 -

16,741 11,748

(o) Other operating expenses

Group

2015 RM’000

2014 RM’000

(i) Personnel costs- salaries, wages, allowances and bonus 425 384 - EPF 59 54 - other staff related expense 153 64

637 502

(ii) Establishment costs- depreciation 3 56 - repairs and maintenance 54 71

57 127

(iii) Marketing and trading expenses- advertisement and promotions 3 12 - travelling expenses 14 8

17 20


FINANCIALS



(o) Other operating expenses (cont’d.)

Group

2015 RM’000

2014 RM’000

(iv) Administration and general expenses - others 1,652 1,560

Other operating expenses 2,363 2,209

(p) Capital adequacy


2015 RM’000

2014 RM’000

Tier 1 capitalIslamic Banking funds 120,000 100,000 Retained profits 5,248 779 Other reserves 105 2,666 Less: Deduction in excess of Tier 2 * (157) - Total CET 1/ Tier 1 capital 125,196 103,445

Tier 2 capitalCollective allowance impairment 711 62 Total Tier 2 capital 711 62

Total capital 125,907 103,507


2015 2014

CET 1 capital ratio 99.60% 106.18%Tier 1 capital ratio 99.60% 106.18%Total capital ratio 100.17% 106.24%

* The portion of regulatory adjustments not deducted from Tier 2 (as the investment banking subsidiary does not have enough Tier 2 to satisfy the deduction) is deducted from the next higher level of capital; as per paragraph 31.1 of the BNM’s Capital Adequacy Framework for Islamic Banks (Capital Components).

K & N KENANGA


2015

FINANCIALS



(p) Capital adequacy (cont’d.)

The breakdown of risk-weighted assets (excluding any deferred tax assets) in the various categories of risk-weights are as follows:

2015 2014

Principal RM’000


Principal RM’000


Investment banking subsidiaryCredit risk 380,972 64,481 440,874 92,474 Market risk - 52,041 - - Operational risk - 9,172 5,284 4,954 Total risk weighted assets 380,972 125,694 446,158 97,428

5 1 . C A P I T A L A N D O T H E R C O M M I T M E N T S

Capital expenditure approved by directors but not provided for in the financial statements amounted to:

Group

2015 RM’000

2014 RM’000

Capital expenditure:Authorised and contracted for 4,470 7,239

5 2 . O P E R A T I N G L E A S E A R R A N G E M E N T S

Operating lease payments represent rentals payable for the use of office equipment and premises. A summary of the non-cancellable operating leases contracted for as at reporting date but not recognised as liabilities and sublease receipts expected to be received under non-cancellable sublease are as follows:

Group

2015 RM’000

2014 RM’000

(a) Future minimum rental payable:Within 1 year 23,241 24,402 Between one and five years 17,271 30,407

40,512 54,809

(b) Future minimum sublease receipts:External parties 3,156 7,127

The operating lease of the Group’s and the Company’s principal office premises is for an initial period of 10 years with an option to renew for another 5 years and subject to rates revision every 3 years. The lease will expiry on 10 June 2017.


FINANCIALS


5 3 . S I G N I F I C A N T A N D S U B S E Q U E N T E V E N T S

The following are the significant events of the Group during the financial year ended 31 December 2015:

Proposed Internal Reorganisation

On 29 October 2015, the Company and its wholly-owned subsidiary, Kenanga Investment Bank Berhad (“KIBB”) propose to undertake an internal reorganisation of the Group’s structure which comprises the proposed merger and the proposed capital restructuring of KIBB (collectively, the “Proposed Internal Reorganisation”) as follows:

(a) Proposed Merger

(i) Proposed transfer of KNKH’s identified assets and liabilities to KIBB (“Proposed Transfer”);

(ii) Proposed capital reduction and repayment by way of cancellation of all the ordinary shares of RM1.00 each in KNKH (“KNKH Share(s)”) and distribution of the entire shareholdings of KNKH in KIBB to the shareholders of KNKH, on the basis of one (1) ordinary share of RM0.25 each of KIBB for every one (1) KNKH Share held by the entitled shareholders of KNKH whose names appear in the Record of Depositors of KNKH on an entitlement date to be determined later (“Proposed KNKH Capital Reduction and Repayment”). Simultaneous with the implementation of the Proposed KNKH Capital Reduction and Repayment becoming effective, KNKH will issue two (2) new KNKH Shares at par value to KIBB (“Proposed Share Issuance”), such that KNKH will thereafter become a wholly-owned subsidiary of KIBB and

(iii) Proposed transfer of KNKH’s listing status on the Main Market of Bursa Securities to KIBB upon completion of the Proposed Transfer, the Proposed KNKH Capital Reduction and Repayment, as well as the Proposed Share Issuance (“Proposed Transfer of Listing Status”).

(b) Proposed Capital Restructuring of KIBB

(i) Proposed capital reduction via the cancellation of ordinary shares of RM1.00 each of KIBB (“KIBB Share(s)”) which will result in the reduction of the issued and paid-up share capital of KIBB to such number that is equivalent to the existing issued and paid-up share capital of KNKH at the prevailing date to facilitate the Proposed KNKH Capital Reduction and Repayment at the distribution ratio of one (1) KIBB share of RM0.25 each for every one (1) KNKH Share (“Proposed KIBB Capital Reduction”);

(ii) Proposed adjustment of the Par Value of each existing KIBB Share from RM1.00 to RM0.25 (“Proposed KIBB Par Value Adjustment”);

(iii) Proposed increase in the authorised share capital of KIBB from RM800,000,000 comprising 800,000,000 KIBB Shares to RM1,250,000,000 comprising 5,000,000,000 ordinary shares of RM0.25 each in KIBB in order to accommodate any increase in the issued and paid-up share capital of KIBB pursuant to any corporate exercise which may be undertaken by KIBB in the future (“Proposed Increase in the Authorised Share Capital of KIBB”); and

(iv) Proposed amendments to the Memorandum and Articles of Association of KIBB to facilitate, among others, the implementation of the Proposed KIBB Capital Reduction, Proposed KIBB Par Value Adjustment and Proposed Increase in the Authorised Share Capital of KIBB, as well as the consequential amendments to comply with the Main Market Listing Requirements of Bursa Securities as KIBB would assume the listing status of KNKH upon completion of the Proposed Transfer of Listing Status.

K & N KENANGA


2015

FINANCIALS


5 3 . S I G N I F I C A N T A N D S U B S E Q U E N T E V E N T S ( C O N T ’ D . )

Proposed Internal Reorganisation (cont’d.)

The following is the subsequent event of the Group subsequent to the financial year ended 31 December 2015:

Proposed Acquisition of a Piece of Freehold Land Together with a Nineteen (19)-Storey Office Building

On 28 January 2016, KIBB entered into a Conditional Sale and Purchase Agreement (“SPA”) with Tropicana Plaza Sdn. Bhd. (formerly known as Dijaya Plaza Sdn. Bhd.) to acquire a piece of freehold land measuring approximately 3,674 square metres and held under Geran 74958, Lot 11672, Seksyen 67, Bandar Kuala Lumpur, Daerah Kuala Lumpur, Negeri Wilayah Persekutuan KL together with a nineteen (19)-storey office building known as “Dijaya Plaza” with two (2) levels of basement containing three hundred and twenty-two (322) parking bays erected thereon and bearing the postal address of No. 237, Jalan Tun Razak, 50400 Kuala Lumpur for a total cash consideration of Ringgit Malaysia One Hundred and Forty Million (RM140,000,000) only subject to the terms and conditions as stipulated in the SPA. The Dijaya Plaza building will be used as the corporate office of the Group.


FINANCIALS


5 4 . B R E A K D O W N O F R E A L I S E D A N D U N R E A L I S E D P R O F I T S

The breakdown of the retained profits of the Group and of the Company as at reporting date into realised and unrealised profits is presented in accordance with the directive issued by Bursa Malaysia dated 25 March 2010 and prepared in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Securities Listing Requirements, as issued by the Malaysian Institute of Accountants.

Group RM’000

Company RM’000

2015

Company and subsidiariesTotal (accumulated losses)/retained profits- Realised (240,870) 55,138 - Unrealised 59,295 13,285

(181,575) 68,423

Associated companiesTotal accumulated losses- Realised (1,499) - - Unrealised (487) -

(1,986) -

Consolidation adjustments 172,327 -

Total (accumulated losses)/retained profits (11,234) 68,423

2014

Company and subsidiariesTotal (accumulated losses)/retained profits- Realised (281,812) 61,120 - Unrealised 20,106 12,166

(261,706) 73,286

Associated companiesTotal accumulated losses- Realised 757 - - Unrealised (1,854) -

(1,097) -

Consolidation adjustments 275,433 -

Total retained profits 12,630 73,286

Disclosure of the above is solely for complying with the disclosure requirements of Bursa Securities Listing Requirements and should not be applied for any other purposes.

K & N KENANGA


2015

218

SHAREHOLDERS’ INFORMATION

ANALYSIS OF SHAREHOLDINGSA S A T 3 1 M A R C H 2 0 1 6

S H A R E C A P I T A L

Authorised Share Capital : RM1,500,000,000.00Issued and Fully Paid-Up Share Capital : RM731,759,499.00 (including treasury shares of 9,212,500) Class of Shares : Ordinary Shares of RM1.00 eachVoting Rights : One (1) vote per share

D I S T R I B U T I O N O F S H A R E H O L D I N G S

Size of HoldingsNo. of

Shareholders% of

ShareholdersNo. of

Shares Held% of

Shareholdings

Less than 100 6,842 26.70 183,790 0.03100 to 1,000 5,862 22.88 2,657,742 0.371,001 to 10,000 10,530 41.09 35,522,669 4.9210,001 to 100,000 2,125 8.29 61,448,880 8.50100,001 to less than 5% of issued shares 261 1.02 288,826,702 39.975% and above of issued shares 4 0.02 333,907,216 46.21Total 25,624 100.00 722,546,999(a) 100.00

Note:(a) Excluding 9,212,500 treasury shares currently retained by the Company.



219

No. Name of Shareholder No. of Shares Percentage (%)

1 CMS Capital Sdn Bhd 153,353,000 21.22

2 Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail 84,375,816 11.68

3 Deutsche Asia Pacific Holdings Pte Ltd 59,663,601 8.26

4 HSBC Nominees (Asing) Sdn Bhd Exempt AN for Tokai Tokyo Securities Co., Ltd.

36,514,799 5.05

5 Cahya Mata Sarawak Berhad 30,070,000 4.16

6 Abdul Aziz Bin Hashim 29,753,712 4.12

7 Aras Kreatif Sdn Bhd 28,819,884 3.99

8 Aiza Binti Abdul Aziz 26,467,156 3.66

9 ABB Nominee (Tempatan) Sdn BhdPledged Securities Account for Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail

16,593,954 2.30

10 Kenanga Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Lim Kian Onn

12,455,810 1.72

11 HSBC Nominees (Asing) Sdn Bhd Exempt AN for Bank Julius Baer & Co. Ltd.

11,829,070 1.64

12 HSBC Nominees (Asing) Sdn Bhd Exempt AN for Credit Suisse

10,105,167 1.40

13 Lim Kuan Gin 8,880,000 1.23

14 Kenanga Nominees (Tempatan) Sdn Bhd Libra Invest Berhad for ECM Libra Foundation

6,867,749 0.95

15 Lim Kian Onn 5,833,029 0.81

16 Pui Cheng Wui 4,722,300 0.65

17 Rescom International Limited 4,292,000 0.59

18 Raja Karib Shah Bin Shahrudin 3,637,642 0.50

19 CIMSEC Nominees (Tempatan) Sdn BhdExempt AN for CIMB Securities (Singapore) Pte Ltd (Retail Clients)

2,909,416 0.40

20 AMSEC Nominees (Tempatan) Sdn BhdAmTrustee Berhad for Pacific Pearl Fund

2,766,700 0.38

21 Sumberama Sdn Bhd 2,333,156 0.32

22 CIMSEC Nominees (Tempatan) Sdn BhdPledged Securities Account for Ng Kok Hin

2,056,834 0.28

23 Citigroup Nominees (Asing) Sdn BhdCBNY for Dimensional Emerging Markets Value Fund

2,020,488 0.28

24 Datuk Chay Wai Leong 1,900,000 0.26

25 Citigroup Nominees (Asing) Sdn BhdCBNY for DFA Emerging Markets Small Cap Series

1,871,361 0.26

26 Citigroup Nominees (Asing) Sdn BhdCBNY Emerging Market Core Equity Portfolio DFA Investment Dimensions Group Inc

1,779,386 0.25

27 Lim Su Tong @ Lim Chee Tong 1,626,833 0.23

28 Ong Geok Hwa 1,611,100 0.22

29 CIMB Group Nominees (Asing) Sdn BhdExempt AN for DBS Bank Ltd (SFS)

1,611,000 0.22

30 Kim Poh Holdings Sdn Bhd 1,503,000 0.21

Total 558,223,963 77.26

ANALYSIS OF SHAREHOLDINGSL I S T O F T H I R T Y ( 3 0 ) L A R G E S T S H A R E H O L D E R S A S A T 3 1 M A R C H 2 0 1 6

K & N KENANGA


2015

220


ANALYSIS OF SHAREHOLDINGSS U B S T A N T I A L S H A R E H O L D E R S A N D D I R E C T O R S ’ I N T E R E S T I N S H A R E S A S A T 3 1 M A R C H 2 0 1 6

S U B S T A N T I A L S H A R E H O L D E R S

Direct Interest(c) Indirect Interest(c)

Name of Substantial Shareholder No. of Shares Percentage (%) No. of Shares Percentage (%)

CMS Capital Sdn Bhd 153,353,000 21.22 - -Cahya Mata Sarawak Berhad 30,070,000 4.16 153,353,000(a) 21.22Deutsche Asia Pacific Holdings Pte Ltd 59,663,601 8.26 - -Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail 100,969,770 13.97 43,500(b) 0.01Tokai Tokyo Financial Holdings, Inc. 36,514,799 5.05 - -

Notes:(a) Deemed interest pursuant to Section 6A of the Companies Act, 1965 by virtue of shares held by CMS Capital Sdn Bhd.(b) Deemed interest by virtue of shares held by person connected. (c) Excluding 9,212,500 treasury shares currently retained by the Company.

D I R E C T O R S ’ S H A R E H O L D I N G S

Direct Interest(b) Indirect Interest(b)

Name of Director No. of Shares Percentage (%) No. of Shares Percentage (%)

Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail 100,969,770 13.97 43,500(a) 0.01Datuk Chay Wai Leong 2,000,000 0.28 - -Dato’ Richard Alexander John Curtis 800,000 0.11 - -Luigi Fortunato Ghirardello 140,000 0.02 - -

Notes:(a) Deemed interest by virtue of shares held by person connected. (b) Excluding 9,212,500 treasury shares currently retained by the Company.


NOTICE

221NOTICE OF TWENTY-SECOND (22ND) ANNUAL GENERAL MEETING

A S O R D I N A R Y B U S I N E S S

1. To receive the Audited Financial Statements for the financial year ended 31 December 2015 together with the Reports of the Directors and Auditors thereon.

2. To re-elect the following Directors, each of whom retires by rotation in accordance with Article 74 of the Company’s Articles of Association:

2.1 Dato’ Richard Alexander John Curtis; and2.2 Encik Ismail Harith Merican.

3. To approve the payment of Directors’ fees totalling RM1,291,986.30 for the financial year ended 31 December 2015.

4. To re-appoint Messrs. Ernst & Young as Auditors of the Company for the financial year ended 31 December 2016, to hold office until the conclusion of the next AGM, at a remuneration to be determined by the Directors.

A S S P E C I A L B U S I N E S S To consider, and if thought fit, to pass the following Ordinary Resolutions: 5. Proposed Re-Appointment of Director Pursuant to Section 129(6) of the Companies Act, 1965

“THAT pursuant to Section 129(6) of the Companies Act, 1965, Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail be and is hereby re-appointed Director of the Company to hold office until the conclusion of the next AGM.”

6. Proposed Re-Appointment of Director Pursuant to Section 129(6) of the Companies Act, 1965

“THAT pursuant to Section 129(6) of the Companies Act, 1965, Encik Izlan Bin Izhab be and is hereby re-appointed Director of the Company to hold office until the conclusion of the next AGM.”

NOTICE IS HEREBY GIVEN THAT the Twenty-Second (22nd) Annual General Meeting (AGM) of K & N Kenanga Holdings Berhad (the Company) will be held at Taming Sari Grand Ballroom, The Royale Chulan Kuala Lumpur, 5, Jalan Conlay, 50450 Kuala Lumpur on Thursday, 26 May 2016 at 11.00 a.m. to transact the following businesses:

Ordinary Resolution 1Ordinary Resolution 2

Ordinary Resolution 3




K & N KENANGA


2015

222

NOTICE

7. Authority to Directors to Issue Shares Pursuant to Section 132D of the Companies Act, 1965

“THAT subject always to the Companies Act, 1965, the Company’s Articles of Association and approvals of the relevant governmental/ regulatory authorities, the Board of Directors be and is hereby authorised pursuant to Section 132D of the Companies Act, 1965, to issue shares in the Company at any time to such persons and upon such terms and conditions and for such purposes as the Board of Directors may, in its absolute discretion, deem fit, provided that the aggregate number of shares to be issued does not exceed 10% of the issued and paid-up share capital of the Company for the time being and the Board of Directors be and is also empowered to obtain the approval from Bursa Malaysia Securities Berhad for the listing of and quotation for the additional shares so issued AND THAT such authority shall commence immediately upon the passing of this Resolution and continue to be in force until the conclusion of the next AGM of the Company.”

8. Proposed Renewal of Shareholders’ Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature (Proposed RRPT Mandate)

“THAT authority be and is hereby given in line with Paragraph 10.09 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad for the Company and/or its subsidiaries to enter into any of the transactions falling within the types of the Recurrent Related Party Transactions, particulars of which are set out in Part A of the Circular to Shareholders dated 29 April 2016, with the Related Party as described in the said Circular, provided that such transactions are of revenue or trading nature, which are necessary for the day-to-day operations of the Company and/or its subsidiaries within the ordinary course of business of the Company and/or its subsidiaries, made on an arm’s length basis and on normal commercial terms which are generally available to the public and are not detrimental to the minority shareholders of the Company;

AND THAT such authority shall commence immediately upon the passing of this Resolution until:

i. the conclusion of the next AGM of the Company at which time the authority shall lapse, unless by Ordinary Resolution passed at a general meeting, the authority is renewed; or

ii. the expiration of the period within which the next AGM after that date is required to be

held pursuant to Section 143(1) of the Companies Act, 1965 (but must not extend to such extension as may be allowed pursuant to Section 143(2) of the Companies Act, 1965); or

iii. revoked or varied by a Resolution passed by the shareholders of the Company at a general

meeting,

whichever is earlier.

AND FURTHER, THAT the Board of Directors be and is hereby authorised to do all acts, deeds and things as may be deemed fit, necessary, expedient and/or appropriate in order to implement the Proposed RRPT Mandate with full power to assent to all or any conditions, variations, modifications and/or amendments in any manner as may be required by any relevant authorities or otherwise and to deal with all matters relating thereto and to take all such steps and to execute, sign and deliver for and on behalf of the Company all such documents, agreements, arrangements and/or undertakings, with any party or parties and to carry out any other matters as may be required to implement, finalise and complete, and give full effect to the Proposed RRPT Mandate in the best interest of the Company.”

NOTICE OF TWENTY-SECOND (22ND) ANNUAL GENERAL MEETING




NOTICE

223

9. Proposed Renewal of Share Buy-Back Authority

“THAT subject to the provisions of the Companies Act, 1965, the Articles of Association of the Company, Bursa Malaysia Securities Berhad’s Main Market Listing Requirements and the approvals of all relevant governmental and/or regulatory authorities, the Company be and is hereby authorised to purchase such number of ordinary shares of RM1.00 each of the Company (Proposed Share Buy-Back) as may be determined by the Board of Directors of the Company from time to time through Bursa Malaysia Securities Berhad, upon such terms and conditions as the Board of Directors may deem fit in the interest of the Company, provided that the aggregate number of shares to be purchased pursuant to this Resolution does not exceed 10% of the total issued and paid-up share capital for the time being of the Company and an amount not exceeding the retained profits and/or share premium of the Company be allocated by the Company for the Proposed Share Buy-Back;

THAT at the discretion of the Board of Directors, upon such purchase by the Company of its own shares, the purchased shares may be cancelled and/or retained as treasury shares and subsequently be cancelled, distributed as dividends or resold on Bursa Malaysia Securities Berhad;

THAT the authority hereby given shall commence immediately upon the passing of this Resolution and shall continue in force until:

i. the conclusion of the next AGM of the Company at which time it will lapse, unless by Ordinary Resolution passed at the AGM, the authority is renewed either unconditionally or subject to conditions; or

ii. the expiration of the period within which the next AGM after that date is required by law to be held; or

iii. revoked or varied by Ordinary Resolution passed by the shareholders of the Company in a general meeting,

whichever occurs first, but not so as to prejudice the completion of the purchase of its own

shares by the Company before the aforesaid expiry date and, in any event, in accordance with the provisions of Bursa Malaysia Securities Berhad’s Main Market Listing Requirements or any other relevant authorities;

AND THAT the Board of Directors of the Company be and is hereby authorised to take all steps as are necessary or expedient to implement or to effect the Proposed Share Buy-Back with full power to assent to any condition, modification, variation and/or amendment as may be imposed by the relevant authorities and to take all such steps as may deem necessary or expedient in order to implement, finalise and give full effect in relation thereto.”

10. To transact any other business of the Company for which due notice shall have been received in

accordance with the Companies Act, 1965.

BY ORDER OF THE BOARD

NORLIZA ABD SAMADMAICSA 7011089Group Company Secretary

Kuala Lumpur29 April 2016



K & N KENANGA


2015

224

NOTICE

Notes:

1. Proxy

1.1 Only members whose names appear in the Record of Depositors as at 20 May 2016 shall be entitled to attend, speak and vote at this AGM.

1.2 A member of the Company entitled to attend, speak and on a show of hands or on poll, to vote at this AGM is entitled to appoint up to two (2) proxies to attend, speak and vote in his place. A proxy may but need not be a member of the Company, an advocate, an approved company auditor or a person approved by the Registrar of Companies.

1.3 A member who is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, may appoint at least one (1) proxy but not more than two (2) proxies in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account.

1.4 Where a member is an exempt authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991 which holds ordinary shares in the Company for multiple beneficial owners in one (1) securities account (Omnibus Account), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each Omnibus Account it holds.

1.5 Where a member appoints more than one (1) proxy, the appointments shall be invalid unless he specifies the proportion of his shareholdings to be represented by each proxy.

1.6 The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing, or if the appointor is a corporation, either under its common seal or under the hand of an officer or attorney duly authorised.

1.7 Duly completed Proxy Form must be deposited at the office of the Company’s share registrar, Symphony Share Registrars Sdn Bhd at Level 6, Symphony House, Pusat Dagangan Dana 1, Jalan PJU 1A/46, 47301 Petaling Jaya, Selangor Darul Ehsan, Malaysia not less than forty-eight (48) hours before the time appointed for holding this AGM or at any adjournment thereof.

2. Audited Financial Statements for the financial year ended 31 December 2015

The audited financial statements under Agenda 1 are for discussion only, as they do not require shareholders’ approval under the provision of Section 169(1) and (3) of the Companies Act, 1965. Hence, Agenda 1 will not be put for voting.

3. Re-appointment of Auditors

The Board of Directors at its meeting on 27 January 2016 approved the recommendation of the Audit Committee on the re-appointment of Messrs. Ernst & Young as Auditors of the Company after having considered several factors including the adequacy of experience and resources of the firm and the professional staff assigned to the audit.

4. Special Business

4.1 Ordinary Resolutions 5 and 6 – Proposed Re-appointments of Directors Pursuant to Section 129(6) of the Companies Act, 1965

The proposed Ordinary Resolutions 5 and 6 in relation to the re-appointments of Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail and Encik Izlan Bin Izhab, if passed, will enable Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail and Encik Izlan Bin Izhab to continue in office as Directors until the conclusion of the next AGM of the Company.



NOTICE

225

4.2 Ordinary Resolution 7 – Authority to Directors to Issue Shares Pursuant to Section 132D of the Companies Act, 1965

The proposed Ordinary Resolution 7 is a renewal of the general mandate pursuant to Section 132D of the Companies Act, 1965 obtained from shareholders of the Company at the previous AGM held on 28 May 2015 and, if passed, will give powers to the Board of Directors to issue ordinary shares in the share capital of the Company up to an aggregate amount not exceeding 10% of the issued and paid-up share capital of the Company for the time being. This general mandate, unless revoked or varied at a general meeting, will expire at the next AGM.

The general mandate from shareholders is to provide the Company the flexibility to undertake any share issuance during the financial year without having to convene a general meeting. The rationale for this proposed mandate is to allow for possible share issue and/or fund raising exercises including placement of shares for the purpose of funding current and/or future investment project, working capital and/or acquisitions, as well as in the event of any strategic opportunities involving equity deals which may require the Company to allot and issue new shares on urgent basis and thereby reducing the administrative time and costs associated with the convening of additional shareholders’ meeting(s). In any event, the exercise of the mandate is only to be undertaken if the Board of Directors considers it to be in the best interest of the Company.

The general mandate obtained from the shareholders of the Company at the previous AGM held on 28 May 2015 had not been utilised and hence, no proceed was raised therefrom.

4.3 Ordinary Resolution 8 – Proposed Renewal of Shareholders’ Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature (Proposed RRPT Mandate)

The proposed Ordinary Resolution 8, if passed, will allow the Company and/or its subsidiaries to enter into Recurrent Related Party Transactions of revenue or trading nature which are necessary for the day-to-day operations of the Company and/or its subsidiaries, subject to the transactions being carried out in the ordinary course of business of the Company and/or its subsidiaries and on normal commercial terms which are generally available to the public and not detrimental to the minority shareholders of the Company, in accordance with Paragraph 10.09 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad.

Further, the Proposed RRPT Mandate will also eliminate the necessity to convene separate general meetings from time to time to seek shareholders’ approval as and when such Recurrent Related Party Transactions occur. This would reduce substantial administrative time and expenses associated with the convening of such meetings without compromising the corporate objectives of the Company and/or its subsidiaries or affecting the business opportunities available to the Company and/or its subsidiaries.

The Proposed RRPT Mandate is subject to renewal on an annual basis.

Further information on the Proposed RRPT Mandate is set out in Part A of the Circular to Shareholders dated 29 April 2016 which is dispatched together with the Annual Report of the Company for the financial year ended 31 December 2015.

4.4 Ordinary Resolution 9 – Proposed Renewal of Share Buy-Back Authority

The proposed Ordinary Resolution 9, if passed, will empower the Board of Directors to allocate an amount not exceeding the retained profits and/or share premium accounts of the Company for the purpose of and to purchase such amount of ordinary shares of RM1.00 each in the Company from time to time on the market of Bursa Malaysia Securities Berhad upon such terms and conditions as the Board of Directors may deem fit in the interest of the Company provided that the aggregate number of shares purchased pursuant to this Resolution does not exceed 10% of the total issued and paid-up share capital of the Company.

The shareholders’ mandate for the Proposed Share Buy-Back is subject to renewal on an annual basis.

Further information on the Proposed Share Buy-Back is set out in Part B of the Circular to Shareholders dated 29 April 2016 which is dispatched together with the Annual Report of the Company for the financial year ended 31 December 2015.


K & N KENANGA


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226

NOTICE

N A M E S O F D I R E C T O R S S T A N D I N G F O R R E - E L E C T I O N O R R E - A P P O I N T M E N T

The Directors who are retiring pursuant to Article 74 of the Articles of Association of the Company and seeking re-election at the forthcoming AGM are as follows:

Article 74

1. Dato’ Richard Alexander John Curtis; and 2. Encik Ismail Harith Merican.

Section 129(6) of the Companies Act, 1965

The Directors who are above the age of seventy (70) years and seeking re-appointment at the forthcoming AGM are as follows:

1. Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail; and2. Encik Izlan Bin Izhab.

Details of the above Directors are set out in the Directors’ Profiles section and their shareholdings in the Company, where applicable, are set out in the Analysis of Shareholdings section appearing on page 220 of the Company’s Annual Report.

STATEMENT ACCOMPANYING NOTICE OF TWENTY-SECOND (22ND) ANNUAL GENERAL MEETING

I/We (IN BLOCK LETTERS)

of

being a member of K & N Kenanga Holdings Berhad hereby appoint

of

or failing him

of

or failing him, THE CHAIRMAN OF THE MEETING as my/our proxy to vote for me/us and on my/our behalf at the Twenty-Second (22nd) Annual General Meeting (AGM) of the Company to be held at Taming Sari Grand Ballroom, The Royale Chulan Kuala Lumpur, 5, Jalan Conlay, 50450 Kuala Lumpur on Thursday, 26 May 2016 at 11.00 a.m. and at any adjournment thereof.

My/Our proxy is to vote as indicated below.

No. Resolutions For Against

1. Re-election of the following Directors pursuant to Article 74 of the Company’s Articles of Association:

1.1 Dato’ Richard Alexander John Curtis1.2 Encik Ismail Harith Merican

RESOLUTION 1RESOLUTION 2

2. Payment of Directors’ Fees totaling RM1,291,986.30 RESOLUTION 3

3. Re-appointment of Messrs. Ernst & Young as Auditors RESOLUTION 4

As Special Business

4. Re-appointment of Tengku Dato’ Paduka Noor Zakiah Binti Tengku Ismail pursuant to Section 129(6) of the Companies Act, 1965

RESOLUTION 5

5. Re-appointment of Encik Izlan Bin Izhab pursuant to Section 129(6) of the Companies Act, 1965

RESOLUTION 6

6. Authority to Directors to Issue Shares pursuant to Section 132D of the Companies Act, 1965

RESOLUTION 7

7. Proposed Renewal of Shareholders’ Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature

RESOLUTION 8

8. Proposed Renewal of Share Buy-Back Authority RESOLUTION 9

(Please indicate with “X” in the spaces provided to indicate how you wish your vote to be casted. If you do not indicate how you wish your proxy to vote on any Resolution, the proxy may vote as he thinks fit, or at his discretion, abstain from voting.)

Date 2016 Signature/Seal of Member

No. of Shares Held :

CDS Account No. :

PROXY FORM

Stamp

Symphony Share Registrars Sdn Bhd Level 6, Symphony HousePusat Dagangan Dana 1Jalan PJU 1A/4647301 Petaling JayaSelangor Darul EhsanMalaysia

fold here

fold here

Notes:

1. Only members whose names appear in the Record of Depositors as at 20 May 2016 shall be entitled to attend, speak and vote at this AGM.

2. A member of the Company entitled to attend, speak and on a show of hands or on poll, to vote at this AGM is entitled to appoint up to two (2) proxies to attend, speak and vote in his place. A proxy may but need not be a member of the Company, an advocate, an approved company auditor or a person approved by the Registrar of Companies.

3. A member who is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, may appoint at least one (1) proxy but not more than two (2) proxies in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account.

4. Where a member is an exempt authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991 which holds ordinary shares in the Company for multiple beneficial owners in one (1) securities account (Omnibus Account), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each Omnibus Account it holds.

5. Where a member appoints more than one (1) proxy, the appointments shall be invalid unless he specifies the proportion of his shareholdings to be represented by each proxy.

6. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing, or if the appointor is a corporation, either under its common seal or under the hand of an officer or attorney duly authorised.

7. Duly completed Proxy Form must be deposited at the office of the Company’s share registrar, Symphony Share Registrars Sdn Bhd at Level 6, Symphony House, Pusat Dagangan Dana 1, Jalan PJU 1A/46, 47301 Petaling Jaya, Selangor Darul Ehsan, Malaysia not less than forty-eight (48) hours before the time appointed for holding the AGM or at any adjournment thereof.

K & N KENANGA HOLDINGS BERHAD (302859-X)

8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia.Tel: +603-2162 1490 / 2164 9080 Fax: +603-2161 4990 E-mail: [email protected]

www.kenanga.com.my

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ANNUAL REPORT 2015 - malaysiastock.biz Datuk Roslan Hj Tik Executive Director, Head of Group Investment Banking & Islamic Banking Kenanga Investment Bank Berhad Maheswari Kanniah Group